T +1 303 813 3973
T +1 303 813 4049
T +1 202 521 1504
T +1 312 602 8517
T +1 513 345 4540
T +1 215 814 1743
The New Mexico Court of Appeals recently upheld a taxpayer’s claim for tax refund because it had complied with all of the statutory requirements for submission prior to the expiration of the limitations period.1
The refund had been denied by the New Mexico Department Taxation and Revenue Department’s administrative hearing officer because the taxpayer failed to timely submit an amended tax return as required by the Department’s administrative regulation.
Claims for refund
New Mexico statutes provide a three-year period for taxpayers to file a written claim for refund.2
For tax periods prior to 2017, the refund claim was required to include the following five components: (i) the taxpayer’s name, address and identification number; (ii) the type of tax for which a refund was being claimed, the credit or rebate denied, or the property levied upon; (iii) the sum of money or other property being claimed; (iv) with respect to a refund, the period for which overpayment was made; and (v) a brief statement of the facts and the law on which the claim was based.3
The Department’s administrative regulation governing claims for refund further requires that the taxpayer submit a copy of the appropriate, fully completed amended return for each period for which a refund is claimed.4
The taxpayer filed a New Mexico claim for refund on Dec. 8, 2016, which met the five statutory requirements. Both the taxpayer and the Department agreed that the statutory deadline for the claim expired on Dec. 31, 2016. The Department subsequently rejected the claim as untimely because the taxpayer did not file an amended return by that date as required by the Department’s regulation. After the taxpayer filed a formal protest, the administrative hearing officer granted summary judgment in favor of the Department, finding that the taxpayer had failed to request a refund in conformity with the statute, as implemented by the regulation, before the expiration of its rights under the statute of limitations. The taxpayer appealed.
Court of Appeals decision
The sole issue before the Court was whether a regulation can operate to bar a claim for refund that otherwise satisfies the statutory requirements. Specifically, the hearing officer had determined that the plain language of N.M. Stat. Ann. Sec. 7-1-26(A) in effect at the time did not preclude the Department from implementing additional requirements by regulation. In his analysis, he noted that the statute prefaced its list of five requirements by stating, “a refund claim shall include…,” which he interpreted to mean that other items could be includable even though they were not specifically enumerated. The taxpayer argued that the regulation constituted an improper expansion of the Department’s authority.
On appeal, the Court found no evidence that the hearing officer considered whether the regulation modified the taxpayer’s right to claim a refund or, more generally, whether there was a conflict or inconsistency between the statute and the regulation. Because both the statute5
address the same issue – the information required to submit a timely claim for refund – but produce different results, the Court found them necessarily inconsistent.7
For this reason, and because the regulation has the effect of abridging the taxpayer’s claim, the Court found the statutory language binding. Consequently, because it complied with the statutory requirements, the Court found the claim timely filed. In so ruling, the Court rejected the Department’s contention that the statute and regulation are consistent and readily harmonized. Specifically, it found the Department did not address or otherwise attempt to resolve the inconsistency identified by the taxpayer.8
Finally, the Court recognized that 2017 legislation ultimately resolved the conflict between the statute and regulation by adding a sixth statutory requirement requiring the submission of an amended return to file a claim for refund.9
This Court of Appeals’ decision highlights the ability of taxpayers to challenge the validity of Department regulations when they do not sufficiently line up with the statute. To be sure, the Department’s denial of the refund claim on the purely procedural ground of not submitting an amended return could be considered harsh, especially if the taxpayer adequately described the substantive aspect of the refund claim as required by statute. By the same token, filing an amended return with a claim for refund is a reasonable practice to follow, even if a state’s procedural statute on point does not explicitly require it. While the issue at hand no longer exists in New Mexico due to the change in the statute that now requires an amended return to be filed, the Court’s ruling provides taxpayers with an opportunity to evaluate other tax regulations which may impermissibly conflict with existing law.
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.