The SME server won't let email go out to the subdomain, so I suspected it was some sort of configuration issue with SME where it considers the subdomain part of the local domain. If I send email to my subdomain (test.domain.com) from an external email account, it works fine. If I send email to my subdomain from my internal account using SME server, I get an error:
Sorry, I couldn't find any host named test.domain.com. (#5.1.2)
So I thought adding the subdomain to SME might allow the mail to be sent?