If the New Mexico tax department abates my assessment, can I recover my attorney fees and costs?

Plain-English summary

William C. Gardner, DDS is a dental professional corporation. The dentist who ran it, William Gardner, was criminally investigated and pleaded no contest to two counts of tax fraud, agreeing to pay $162,534.06 in restitution. The investigation found the practice had underreported its gross receipts and owed roughly $220,000 in gross receipts tax, so in August 2022 the Department issued the corporation 56 assessments (about $267,433.90 with interest).

The corporation protested and filed for summary judgment. Before responding, the Department abated the assessments — but for its own administrative reasons: it plans to collect the $162,534.06 from the individual dentist under his plea agreement, and abating the corporation's assessments avoided double-collecting the same money in its GENTAX system. The corporation then asked to recover its administrative costs and attorney fees as the "prevailing party."

Hearing Officer Dee Dee Hoxie denied the fee request:

• Winning an abatement doesn't automatically make you the "prevailing party." Under Section 7-1-29.1, a taxpayer can recover fees only if it substantially prevailed and the Department's position was not a reasonable application of the law to the facts.
• The original assessment was reasonable when issued. A tax-fraud investigation had found the practice underreported and owed about $220,000, so there was substantial evidence supporting the assessment at the time — meaning the Department's position was not "unreasonable" under the statute.
• A voluntary abatement for convenience isn't a concession of error. The Department abated to avoid double collection while pursuing the individual, not because its assessment was wrong. That does not convert the taxpayer into the prevailing party.

Because the corporation was not the prevailing party, it recovered no costs or fees — even though its assessments were wiped out.

What this means for you

Taxpayers who get an assessment abated

Getting an assessment cancelled is a good outcome, but it does not by itself entitle you to your attorney fees. New Mexico only awards costs and fees when you are the "prevailing party," and you are not the prevailing party if the Department's position was a reasonable application of the law to the facts when the assessment issued. An abatement the Department grants for its own convenience is not an admission that it was wrong.

Business entities whose owner is investigated

An assessment against a corporation or LLC can rest on an investigation of the owner, and the entity and the individual may be treated as jointly and severally liable where a plea agreement supports it. Here the Department chose to pursue the individual and abate the entity's assessments — but that choice was about collection logistics, not about whether the entity owed the tax. (The related decision on the individual dentist, D&O 24-10, upheld assessing him based on his plea and restitution.)

Anyone weighing a fee motion after a favorable abatement

Before spending on a costs-and-fees motion, assess whether the Department's original position lacked substantial evidence or ignored published guidance — that is what makes it "unreasonable" and opens the door to fees. If the assessment was well-supported when made, a later abatement will not get you fees.

Tax professionals

The decision applies Section 7-1-29.1(C)'s two-part test and its presumption of unreasonableness (unfollowed guidance or an assessment lacking substantial evidence), and follows High Desert Recovery (2020-NMCA-048) — an assessment can be reasonable when issued even if later abated — while distinguishing Helmerich Payne (2019-NMCA-054), where the Department's conduct differed. The reasonableness inquiry is measured at the time of assessment, not by the ultimate outcome.

Common questions

Q: The department abated my assessment. Am I automatically the "prevailing party"?
A: No. Section 7-1-29.1 does not treat an abatement as an automatic win. You must also show the Department's position was not a reasonable application of the law to the facts.

Q: When is the Department's position considered "unreasonable"?
A: It is presumed unreasonable if the Department did not follow applicable published guidance, or if the assessment was not supported by substantial evidence when it was issued.

Q: Why didn't the abatement help me get fees here?
A: Because the assessment was reasonable when issued (a fraud investigation found underreporting of about $220,000), and the Department abated only for administrative convenience while pursuing the individual — not because its position was wrong.

Q: Can the state assess both a business and its owner for the same tax?
A: It can pursue the parties it believes are liable, and a plea agreement can support joint and several liability. Here it chose to abate the corporation's assessments and collect from the individual instead. This decision made no ruling on its ability to do so.

Q: Can I rely on this decision for my own situation?
A: Not directly. A Decision and Order resolves one taxpayer's protest on its specific facts and is not a general ruling or advisory opinion of the Department. It does illustrate that an abatement alone will not earn you costs and fees.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-29.1(A), (C) (2019) — costs and fees for a prevailing taxpayer; the reasonable-application-of-law exception; presumption of unreasonableness
• NMSA 1978, § 7-1B-8 (2019); 22.600.3.8 NMAC (2020) — protest and hearing procedure

Cases:

• High Desert Recovery v. N.M. Taxation & Revenue Dep't, 2020-NMCA-048 (an assessment can be reasonable when issued even if a substantial part is later abated; abatement does not automatically make the taxpayer the prevailing party)
• Helmerich Payne Int'l Drilling Co. v. N.M. Taxation & Revenue Dep't, 2019-NMCA-054 (distinguished; the Department's conduct there differed)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: William C Gardner, DDS
• Decision PDF: D&O 24-02

Original ruling text

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

4 WILLIAM C. GARDNER, DDS
5 v. AHO No. 23.03-010A, D&O No. 24-02
6 NEW MEXICO TAXATION AND REVENUE DEPARTMENT

7 DECISION AND ORDER
8 On November 3, 2023, Hearing Officer Dee Dee Hoxie, Esq. conducted a telephonic

9 hearing on the protest. The Taxation and Revenue Department (Department) was represented by

10 David Mittle, Staff Attorney. William C. Gardner, DDS (Taxpayer) was represented by its

11 attorneys, Zachary McCormick and Kateri West. William Gardner (Individual) also appeared for

12 the Taxpayer at the hearing. The parties agreed that the only outstanding issue1 of the protest is

13 the Taxpayer’s motion for administrative costs and fees. Neither party requested a hearing on

14 the Taxpayer’s motion for administrative costs and fees. The parties agreed that a final decision

15 and order could be issued based on the pleadings.

16 The main issue to be decided is whether the Taxpayer is the prevailing party and entitled

17 to administrative costs and fees. Because the Department’s position was based on a reasonable

18 application of the law to the facts, the Hearing Officer finds in favor of the Department. IT IS

19 DECIDED AND ORDERED AS FOLLOWS:

20 FINDINGS OF FACT

21 Procedural findings.

1
The Department provided a response to a notice of hearing. The Department acknowledged that there might be
some minor discrepancy in the amounts assessed and the amounts in the formal abatements, but the Department
confirmed that the underlying assessments have been abated and that the matter can proceed on the motion for costs
and fees as the parties had agreed.
William C. Gardner, DDS
Case No. 23.03-010A
page 1 of 8
1 1. On August 17, 2022, the Department issued 54 assessments to the Taxpayer for

2 gross receipts tax and interest. On August 23, 2022, the Department issued two assessments to

3 the Taxpayer for gross receipts tax and interest. [Admin. file].

4 2. On September 27, 2022, the Taxpayer filed by email a timely written protest to

5 the assessments. [Admin. file protest].

6 3. On September 30, 2022, the Department acknowledged by email its receipt of the

7 protest. [Admin. file].

8 4. On March 30, 2023, the Taxpayer filed a request for hearing with the

9 Administrative Hearings Office. [Admin. file request].

10 5. On March 31, 2023, the Department filed its answer to the protest. [Admin. file].

11 6. On May 3, 2023, a telephonic scheduling hearing was conducted, which was

12 within 90 days of the request for hearing as required by statute. [Admin. file].

13 7. On September 5, 20232, the Taxpayer filed a motion for summary judgment (SJ

14 Motion3). [Admin. file].

15 8. On October 6, 2023, a telephonic scheduling hearing was conducted. At the

16 hearing the parties announced that the Department intended to abate the assessments and that the

17 Taxpayer would be filing a withdrawal. [Admin. file].

18 9. On October 17, 2023, the Taxpayer filed its motion for administrative costs and

19 fees (Taxpayer’s Motion4). [Admin. file].

2
A comprehensive history of the protest may be acquired by referring to the administrative file.
3
The SJ Motion included a declaration and exhibits. References to these attachments will be preceded by “SJ
Motion”.
4
The Taxpayer’s Motion included an affidavit and exhibits. References to these attachments will be preceded by
“Taxpayer’s Motion”.
William C. Gardner, DDS
Case No. 23.03-010A
page 2 of 8
1 10. On October 31, 2023, the Department filed its response (Department’s Response 5)

2 to the Taxpayer’s Motion. [Admin. file].

3 11. At the hearing conducted on November 3, 2023, the Taxpayer requested to reply,

4 and the request was granted. The Taxpayer filed its reply (Taxpayer’s Reply) on November 9,

5 2023. [Admin. file].

6 Substantive findings.

7 12. The Taxpayer is a Professional Corporation. [SJ Motion Exhibit 1].

8 13. The Individual was the dentist who practiced at the Taxpayer and served as its

9 registered agent and an officer of the Taxpayer. [SJ Motion Declaration; SJ Motion Exhibit 1].

10 14. The Individual was indicted on tax fraud charges, with an ultimate disposition of a

11 no contest plea to two counts filed on February 9, 2022 in the Bernalillo County District Court.

12 [SJ Motion Exhibit 3; SJ Motion Exhibit 9].

13 15. The investigation that led to the Individual’s indictment included the Individual,

14 the Taxpayer, and another business entity. [Department’s Response Exhibit 1 through

15 Department’s Response Exhibit 3].

16 16. The investigation determined that the Taxpayer underreported its gross receipts

17 and owed approximately $220,0006 in gross receipts taxes. [Department’s Response Exhibit 1-

18 10].

19 17. The assessments of gross receipts taxes were issued to the Taxpayer, and they

20 were based on the receipts of the Taxpayer, not the Individual. [SJ Motion page 9].

5
The Department’s Response included exhibits. References to these attachments will be preceded by
“Department’s Response”.
6
The total of the assessments in the administrative file is $267,433.90, which includes interest. The total indicated
on the request for hearing is $268,995.23.
William C. Gardner, DDS
Case No. 23.03-010A
page 3 of 8
1 18. The Taxpayer’s underreporting was perpetrated by the Individual. [Department’s

2 Response Exhibit 1-10].

3 19. The Individual agreed to pay restitution of $162,534.06 in unpaid taxes and

4 interest as part of his plea agreement. [SJ Motion Exhibit 9].

5 20. Based on the plea agreement, the Department is treating the Individual and the

6 Taxpayer as jointly and severally liable for $162,534.06 in unpaid taxes and interest.

7 [Department’s Response page 3].

8 21. Based on the plea agreement, the Department intends to assess the Individual for

9 the $162,534.06 in unpaid taxes and interest. [Department’s Response page 3].

10 22. To avoid unfairness and possibly double collections by the accounts receivable in

11 the GENTAX system on the $162,534.06, the Department decided to abate the assessments

12 against the Taxpayer. [Department’s Response page 3].

13 DISCUSSION
14 Prevailing party.

15 In an administrative proceeding on a tax protest, a taxpayer is entitled to an award of

16 reasonable costs and fees, including attorney fees, incurred in connection with the proceeding “if

17 the taxpayer is the prevailing party.” NMSA 1978, § 7-1-29.1 (A) (2019). A taxpayer is the

18 prevailing party if the taxpayer has substantially prevailed with respect to the amount in

19 controversy or with respect to most of the issues or with respect to the most significant issues.

20 See NMSA 1978, § 7-1-29.1 (C) (1). However, the taxpayer is not the prevailing party if the

21 Department’s position in the proceeding was based upon a reasonable application of the law to

22 the facts of the case. See NMSA 1978, § 7-1-29.1 (C) (2). The Department’s position shall be

23 presumed to be unreasonable if it did not follow applicable published guidance or if the

24 assessment was not supported by substantial evidence at the time it was issued. See id.
William C. Gardner, DDS
Case No. 23.03-010A
page 4 of 8
1 The Taxpayer argues that it is the prevailing party because the Department has conflated

2 the Taxpayer with the Individual and because the Department opted to abate the assessment

3 rather than respond to the SJ Motion. [Taxpayer’s Motion page 4] 7. The Taxpayer argues that

4 the Department “really meant to assess the individual taxpayer, and not the corporate one.”

5 [Taxpayer’s Motion page 4]. The Taxpayer argues that the situation is substantially similar to

6 the one in Helmerich Payne Int’l Drilling Co. v. N.M. Taxation & Revenue Dep’t, 2019-NMCA-

7 054. [Taxpayer’s Motion page 4]. The Taxpayer admits that the Department has provided an

8 explanation for its actions in this protest, which differs from the Department’s actions in

9 Helmerich. [Taxpayer’s Motion page 4 and Taxpayer’s Motion page 5]. The Taxpayer argues

10 that the Department actions were not reasonable, that it continues to conflate the Taxpayer with

11 the Individual, and that the Taxpayer is a separate legal entity that was not subject to assessment

12 based on the Individual’s plea agreement. [Taxpayer’s Reply].

13 A taxpayer is not automatically granted the status of “prevailing party” simply because

14 the Department abates an assessment. See NMSA 1978, § 7-1-29.1. See also High Desert

15 Recovery v. N.M. Taxation & Revenue Dep’t, 2020-NMCA-048 (holding that the Department’s

16 initial assessment was reasonable even though a substantial part was incorrect and later abated by

17 the Department). The Department’s position is presumed unreasonable if the assessment was not

18 supported by substantial evidence when it was made. See NMSA 1978, § 7-1-29.1 (C) (2). In

19 this protest, the Department’s position is that the Taxpayer is liable for the unpaid gross receipts

20 taxes and interest that were assessed. [Department’s Response]. The Department’s position is

21 based upon the tax fraud investigation and the criminal prosecution of the Individual.

22 [Department’s Response and its attachments]. The tax fraud investigation found that the

7
The page numbers in the SJ Motion refer to the pages of the motion itself by count, as they are not numbered.
Page numbers do not refer to the attachments unless the specific attachment is also identified in the citation.
William C. Gardner, DDS
Case No. 23.03-010A
page 5 of 8
1 Taxpayer was substantially underreporting its gross receipts and owed approximately $220,000

2 in gross receipts taxes. [Department’s Response Exhibit 1-10]. Therefore, the Department’s

3 assessment of the Taxpayer was a reasonable application of the law to the facts at the time that

4 the assessment was issued. See NMSA 1978, § 7-1-29.1.

5 The Department decided to abate the assessment for its own administrative convenience

6 regarding issues with tracking payments in GENTAX and its intent to pursue collection of the

7 taxes through the Individual8 rather than the Taxpayer. [Department’s Response]. The

8 Department’s decision to abate does not render the Department’s position at the time of

9 assessment unreasonable. See NMSA 1978, § 7-1-29.1. Because the Department’s assessment

10 of the Taxpayer was a reasonable application of the law to the facts, the Taxpayer is not the

11 prevailing party. See id. Since the Taxpayer is not the prevailing party, the Taxpayer is not

12 entitled to an award of costs and fees. See id.

13 CONCLUSIONS OF LAW

14 A. The Taxpayer filed a timely written protest to the assessment, and jurisdiction lies

15 over the parties and the subject matter of this protest. See NMSA 1978, § 7-1B-8 (2019).

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

17 See id. See also 22.600.3.8 NMAC (2020).

18 C. The Department abated the assessments, but the Taxpayer is not the prevailing party

19 because the Department’s assessment of the Taxpayer was a reasonable application of the law to the

20 facts. See NMSA 1978, § 7-1-29.1. See also Helmerich, 2019-NMCA-054. See also High Desert,

21 2020-NMCA-048.

8
This decision makes no findings, factual or legal, regarding the Department’s ability to take its intended actions
against the Individual for taxes incurred by the Taxpayer.
William C. Gardner, DDS
Case No. 23.03-010A
page 6 of 8
1 For the foregoing reasons, the Taxpayer’s request for administrative costs and fees IS

2 DENIED.

3 DATED: January 4, 2024.

4 Dee Dee Hoxie
5 Dee Dee Hoxie
6 Hearing Officer
7 Administrative Hearings Office
8 P.O. Box 6400
9 Santa Fe, NM 87502

10 NOTICE OF RIGHT TO APPEAL

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

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

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

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

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

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

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

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

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

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

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

William C. Gardner, DDS
Case No. 23.03-010A
page 7 of 8
1 CERTIFICATE OF SERVICE

2 On January4, 2024, a copy of the foregoing Decision and Order was submitted to the

3 parties listed below in the following manner:

4 First Class Mail & Email First Class Mail & Email
5
6
7 INTENTIONALLY BLANK

William C. Gardner, DDS
Case No. 23.03-010A
page 8 of 8