NEW JERSEY TAX COLLECTION FORUM

Transcription

1 NEW JERSEY TAX COLLECTION FORUM WHERE: Bergen Community College Ciarco Learning Center 355 Main Street Room 102/103 Hackensack, NJ WHEN: Thursday, October 27, :00 PM 9:00 PM This seminar concentrates on the representation of taxpayers that owe tax to the State of New Jersey. TOPICS: Compliance and Collection Process Pioneer Credit Recovery Referral Cost Recovery Fee Responsible Persons Set-Off program Deferred (Installment) Payment Plan Abatement Requests Top Debtors Taxpayers Bill of Rights Office of the Taxpayer Advocate SPEAKERS: Frank Agostino, Esq., Agostino & Associates Jairo G. Cano, Esq., Agostino & Associates Lou Cafiero, North Region Supervisor, New Jersey Division of Taxation Tom MacDonald, Chief of Compliance & Enforcement, New Jersey Division of Taxation A Representative of Pioneer Credit Recovery, Inc.

2 Table of Contents Timed Agenda... 1 Speaker Biographies... 2 Outline...7 I. Introduction...7 II. New Jersey Collection Procedures...7 III. Enforced Collection Criminal Prosecution...10 IV. Collection Alternatives...12 V. New Jersey Taxpayer Advocate...14 VI. New Jersey Tax Assessment Procedures...15

3 TIMED AGENDA New Jersey Tax Collection Forum 6:00-6:10 Introductions & Opening Remarks Jairo Cano, Agostino & Associates 6:10-7:10 New Jersey Collection Process Lou Cafiero, New Jersey Division of Taxation 7:10 7:20 Break 7:10-7:40 Pioneer Collection Process Installment Agreements Certificate of Debt Collection Recovery Fee Procedures for Handling Federal Cases Speaker TBD 7:40-7:50 Break 7:50-8:15 Comparative Analysis NJ Financial Statement of Debtor & IRS Form 433-A Frank Agostino, Agostino & Associates 8:15-8:45 NJ Enforced Collection NJ Form 906 Evaluation of Offers in Compromise Levies & Levy Release Tom MacDonald, New Jersey Division of Taxation 8:45-9:00 Taxpayer Advocate Service Frank Agostino, Agostino & Associates

4 Frank Agostino, Esq. President 14 Washington Place Hackensack, NJ ext. 107 Profile Frank Agostino is the president of Agostino & Associates, P.C., a law firm in Hackensack, New Jersey specializing in civil and white collar criminal litigation, tax controversies and tax planning. Prior to entering private practice, Mr. Agostino was an attorney with the Internal Revenue Service s District Counsel in Springfield, Illinois and Newark, New Jersey. He also served as a Special Assistant United States Attorney, where he prosecuted primarily criminal tax cases. As an adjunct professor, Mr. Agostino taught tax controversy at Rutgers School of Law and served as the co-director of the Rutgers Federal Tax Law Clinic. Mr. Agostino is a frequent speaker and author on tax controversy and litigation matters. He serves on the Advisory Board of the Journal of Tax Practice and Procedure. Mr. Agostino is actively involved with the American Bar Association and the New York County Lawyers Association. Mr. Agostino is also the President of the Taxpayers Assistance Corp., which provides tax and legal advice to low income taxpayers in the NY/NJ area. Recent Publications Tax Practitioner s Guide to Identity Theft (CCH Inc., 2015), ISBN Recent Developments in FATCA Compliance, 93 TAXES 51 (July 2015) A 21st-Century Approach to Litigating Valuation Issues, 17 J. TAX PRAC. & PROC. 47 (Apr.-May 2015) Reviving Disallowed Charitable Conservation Easement Deductions, 146 TAX NOTES 449 (Apr. 27, 2015) Practice Areas Civil Tax Education Criminal Tax White Collar Defense LL.M., Taxation, New York University School of Law J.D., New York Law School B.A., City College of New York Awards & Recognition Recipient, ABA s 2012 Janet Spragens Pro Bono Award Recipient, NJ State Bar Association s 2015 Pro Bono Award Admitted In New York New Jersey Tax Court

5 Be Prepared: The IRS s Duty to Foster Voluntary Compliance Through Code Secs. 6014(a) and 6020(a), 17 J. TAX PRAC. & PROC. 5 (Feb.-Mar. 2014) Agostino & Associates Contact Information: Jairo Cano, Esq. Jcano@agostinolaw.com Tel ext. 144 Robert Dennerlein, Esq. Rdennerlein@agostinolaw.com Tel ext. 131 Jeffrey Dirmann, Esq. Jdirmann@agostinolaw.com Tel ext. 119 Eugene Kirman, Esq. Ekirman@agostinolaw.com Tel ext. 142 Jeremy Klausner, Esq. Jklausner@agostinolaw.com Tel ext. 130 Dolores Knuckles, Esq. Dknuckles@agostinolaw.com Tel ext. 109 Lawrence Sannicandro, Esq. Lsannicandro@agostinolaw.com Tel ext. 128 Michael Wallace, EA Mwallace@agostinolaw.com Tel ext. 143 Caren Zahn, EA Czahn@agostinolaw.com Tel ext. 103

6 Jairo G Cano, Esq. Associate at Agostino & Associates, PC Jairo G. Cano is an associate with Agostino & Associates, P.C. He regularly represents clients in complex Federal and State tax controversy matters before the Internal Revenue Service, the New Jersey Division of Taxation and New York Department of Taxation and Finance. Jairo routinely appears on behalf of clients in audits, Appeals hearings, collection proceedings and litigation before the United States Tax Court, New Jersey Tax Court and United States District Courts. Prior to joining Agostino & Associates, Jairo worked for the New Jersey Office of the Attorney General in the Treasury Section where he handled gross income tax, corporation business tax, sales & use tax and various other tax cases. Jairo currently serves as Vice-Chair of the ABA Tax Section s Diversity Committee. In 2015, Jairo was selected as a Nolan Fellow by the American Bar Association s Tax Section. Each year, this award is given to a select group of outstanding young tax lawyers from across the country who make significant contributions to the organization and who demonstrate leadership qualities. Education LL.M., University of Florida, Levin College of Law, 2009 J.D., Seton Hall University School of Law, 2006 B.A., Drew University, 2001 Bar and Court Admissions New Jersey New York U.S. Tax Court U.S. District Court for the Eastern District of New York U.S. District Court for the District of New Jersey U.S. District Court for the Southern District of New York Professional Affiliations American Bar Association, Section of Taxation, Diversity Committee: Vice-Chair ( ) Hispanic Bar Association of New Jersey New Jersey State Bar Association Section of Taxation Recent Publications New Jersey Tax Collection, Agostino & Associates Monthly Journal of Tax Controversy (Feb. 2016)

7 The Continuing Impact of the AJAC Project on IRS Enforced Collection Cases, The CPA Journal (Jan. 2016) The Foreign Tax Credit & Deductions of Foreign Taxes in Connection with an Offshore Voluntary Disclosure, Agostino & Associates Monthly Journal of Tax Controversy (Aug. 2015) Not All Income Is Created Equal: The Taxation of PFIC Income Under the New Jersey Gross Income Tax Act, Agostino & Associates Monthly Journal of Tax Controversy (July 2015) Appeals Judicial Approach and Culture The Return of the Independent Appeals Office, Agostino & Associates Monthly Journal of Tax Controversy (June 2015) Practical Tips for Surviving a New Jersey Cash Audit, Agostino & Associates Monthly Journal of Tax Controversy (Feb. 2015) How to Report Cash Receipts and Payments, Journal of Tax Practice & Procedure (Oct./Nov. 2014) Choosing Between a Qualified Amended Return and the IRS Streamlined Filing Compliance Procedures, Agostino & Associates Monthly Journal of Tax Controversy (June 2014) Please Pass the SALT During IRS Voluntary Disclosures and Audits: New York/New Jersey Notice of Federal Tax Change Requirements, Agostino & Associates Monthly Journal of Tax Controversy (Jan. 2014) Recent Speaking Engagements The Administrative Tax Controversy Case from Examination to Appeals (Moderator), American Bar Association Tax Section Meeting, Los Angeles, CA (Jan. 2016) 5th Annual Introduction to New Jersey Tax Controversies (Panelist), Seton Hall University School of Law, Newark, NJ (Jan. 2016) State Income, Double Taxation and Tax Discrimination in the Post-Wynne World (Moderator), American Bar Association Tax Section Meeting, Chicago, IL (Sept. 2015) Pretrial Planning & Judicial Precedence (Moderator), American Bar Association Tax Section's Midyear Meeting, Houston, TX (Jan. 2015) How to Represent a Cash Business in Federal and State Tax Audits and Investigations (Panelist), Bergen County Community College, Hackensack, NJ (May 2015)

8 New Jersey Offshore Voluntary Disclosures (Panelist), 6th Annual Criminal Tax Enforcement Forum, Bergen County Community College, Paramus, NJ (Jan. 2015) Trial of the Tax Court Case (Moderator), American Bar Association Tax Section's May Meeting, Washington, DC (May 2014) Tax Implications of Immigration Cases (Moderator), American Bar Association's Tax Section Midyear Meeting, Phoenix, AZ (Jan. 2014) Collection Issues Surrounding the BSA under Title 26 and Title 31 (Panelist), American Bar Association's Tax Section Midyear Meeting, Phoenix, AZ (Jan. 2014) New Jersey Offshore Voluntary Disclosures (Panelist), 5th Annual Criminal Tax Enforcement Forum, Bergen County Community College, Paramus, NJ (Jan. 2014)

9 New Jersey Tax Rules and Procedure I. Introduction a. Authority of the Director: The director is authorized to promulgate regulations and take other necessary or useful measures for the purpose of efficiently administering this act, securing the largest possible recoveries for the State, ensuring the integrity of the collection program and assuring fairness to taxpayers. N.J.S.A. 54: II. New Jersey Collection Procedures a. Enforced Collection Statistics Enforced Collection Summary for the Second Quarter of 2016 Collection Action Number of Cases Amount Collected Bank Levies 641 $2,727,436 Certificate of Debt Filings 3,003 $45,759,980 Seizures 120 $1,820,330 Auctions 8 $181,195 Warrants of Satisfaction 3, b. Enforced Collection Notice Process i. If a taxpayer fails to pay an assessed liability, the Division will issue an Underpayment Notice. ii. A Second Underpayment notice will be issued if the taxpayer does not respond to the first Underpayment Notice. iii. If the taxpayer does not respond to the Underpayment Notices within 30 days, the case may be referred to Pioneer Credit Recovery ( Pioneer ) for further collection activity. Cases that are referred to Pioneer may be subject to a 5% failure to pay penalty and a 10.70% collection recovery fee. c. Enforced Collection Pioneer i. Pioneer is a private collection agency that assists the Division in its efforts to collect unpaid taxes. ii. Taxpayer Rights: 1

10 Taxpayer has the same rights to confidentiality with Pioneer that the taxpayer has with the Division, the IRS and under the State s ethics guidelines. N.J.S.A. 54:50-8, N.J.S.A. 54:50-9. Pioneer must adhere to all state ethics guidelines and procedures required of Division of Taxation employees. iii. Pioneer Review process Pioneer reviews the case and assigns it to a case worker. The Case worker mails a letter and a revised schedule of liabilities to the taxpayer. If a case is not resolved within 30 days from the date of Pioneer s initial contact with the taxpayer, Pioneer will issue a Notice of Demand for Payment by certified mail to the taxpayer. The Notice and Demand for Payment provides a 30 day (for deficiency cases) or 90 day (for delinquency cases) for the taxpayer to resolve the case. If the case is not resolved with Pioneer credit within the specified time, a Certificate of Debt will be filed with the Clerk of the New Jersey Superior Court. The case is returned to the Division after the Certificate of Debt is filed for further collection activities. iv. Cases assigned to Pioneer are subject to a 10% Referral Cost Recovery Fee. Beginning on July 1, 2016, the fee increased to 10.70%. d. Tax Lien and Certificate of Debt i. Perfecting the Tax Lien The lien is perfected for a self-assessed liability at the time that the debt becomes due. The lien is perfected for a liability resulting from an examination at the time that the taxpayer s right to protest expires. The Division does not have to file a Certificate of Debt in order for its tax lien to be perfected. See e.g. Monica Fuel, Inc. v. IRS, 56 F.3d 508 (3d Cir. 1995). 2

11 ii. Once the Tax Lien is perfected, the Division can either: Issue a warrant of execution on the taxpayer s property; or File a Certificate of Debt with the clerk of the Superior Court of New Jersey. iii. The filing of a Certificate of Debt provides the Division with all of the remedies that are available to a creditor who has been granted a judgment against a debtor. The Division has six (6) years from the date of assessment to issue a Certificate of Debt. The Attorney General may bring an action to recover unpaid taxes within twenty (20) years after the filing of the Certificate of Debt. The Attorney General may file a motion in Superior Court to extend the twenty (20) year period. iv. Appeal to Tax Court e. Warrant of Execution Within 90 days of the filing of the Certificate of Debt, the Taxpayer may appeal to the Tax Court by filing a complaint. The Tax Court case will focus on whether there were any procedural defects in the filing of the Certificate of Debt. The taxpayer cannot challenge the underlying tax liability during this Tax Court case unless the Division failed to follow proper procedures during the assessment process, i.e., the tax was assessed without the issuance of a statutory notice of deficiency. i. The warrant of execution allows the Division to seize a taxpayer s assets and sell them at auction. ii. If a warrant of execution is filed against a taxpayer, that taxpayer may be precluded from registering property such as a motor vehicle in the state. The taxpayer will not be able to sell, register or transfer title in the vehicle until the tax issues are resolved. iii. The warrant of execution powers can be used to seize licenses such as a liquor license so that it can be sold at auction. iv. Property exempt from levy or seizure. 3

12 90% of a taxpayer s wages unless the income exceeds 250% of the poverty level for an individual with the same family size i. In cases where the income threshold is passed, the court has the discretion to determine the wage garnishment amount. $1,000 plus an exemption for all wearing apparel Household goods and furnishings not exceeding $1,000 in value Land held for burial purposes Workers compensation payments A partner s interest in partnership property but not his partnership interest New Jersey Old Age Assistance Payments Funds held in an Individual Retirement Account i. Exemption does not apply if funds were transferred pursuant to a fraudulent transfer. Funds held in a pension plan established pursuant to the Employee Retirement Income Security Act (ERISA) v. New Jersey does not have a homestead exemption for seizures but the property rights of a spouse who does not owe money to the Division are protected if the property is owned as tenants by the entirety. vi. New Jersey does not provide a pre-levy review forum. The Division will consider a levy release if the taxpayer can demonstrate that the levy resulted in a financial hardship. III. Enforced Collection Criminal Prosecution a. Financial Difficulty is not an Excuse: Defendant was sentenced to five years in prison and ordered to pay $187,742 in restitution for failure to pay taxes. The conviction was affirmed under the following facts: i. Defendant entered into an installment agreement whereby he agreed to pay the state on a monthly basis; ii. Defendant was absent from the business during a period of time due to illness; iii. During Defendant s absence, new tax liabilities were accrued, sales tax returns were filed late and the installment agreement was terminated; iv. Defendant was asked to pay the most-recent quarter in full and to enter into a new installment agreement for the back taxes owed; v. Defendant did not submit the taxes for the most-recent quarter in full; vi. As a result, Defendant was charged with failure to remit collected taxes and failure to make required deposits in excess of $75,000. State v. Barasch, 372 N.J. Super. 355 (A.D. 2004). 4

13 b. New Jersey Top Debtor s List i. New Jersey publishes lists of the top individual and the top business tax debtors in the state. c. When a taxpayer ignores the Division s efforts to collect outstanding tax liabilities including enforced collection efforts, the New Jersey Office of Criminal Investigation Technical Enforcement Unit ( TEU ) will evaluate the case to determine whether a criminal investigation is warranted. i. In cases where a criminal investigation is warranted, TEU will work with the Mercer County Prosecutor s Office to pursue the criminal investigation. d. Crimes Related to Non-Payment of Tax i. NJSA 2C:20-9: Theft by Failure to Make Required Disposition of Property Received. A person who purposely obtains or retains property upon agreement or subject to a known legal obligation is guilty if he deals with the property as his own and fails to make the required payment. Payment with a dishonored check or electronic transfer is prima facie evidence of the failure to make a required payment. There must be a showing that the defendant both retained property subject to knowledge of a known legal obligation and that the defendant dealt with the property as if it was his own. See, e.g., State v. Kelly, 204 N.J. Super. 283 (A.D. 1985). ii. NJSA 2C:21-5: Issuing a Bad Check or Electronic Transfer: A person who issues payment by check, or electronic transfer who knows that the payment will not be honored is guilty of a crime. iii. NJSA 54:52-6: Disorderly Person Offenses: A person commits a disorderly person offense if he recklessly or negligently: Fails to file a return. Fails to pay over taxes required by the State. Fails to charge a state tax as required by the State. Fails to separately account for state taxes as required by the State. Fails to withhold state tax as required by the state. iv. NJSA 54:52-8: Failure to File Returns: A person is guilty of a third degree crime if he fails to file a return with the intent to defraud the State or to evade, avoid or otherwise not make timely payments of tax. 5

14 v. NJSA 54:52-9: Failure to Pay Tax: A person is guilty of a third degree crime if he fails to pay taxes when due with the intent to evade, avoid or otherwise not make timely tax payments. The payment of tax with a dishonored check or electronic payment is prima facie evidence of the failure to pay. vi. NJSA 54:52-14: Failure to Collect or Withhold State Tax: A person is guilty of a third degree crime if he fails to collect or withhold State tax with the intent to evade, avoid or otherwise make timely payments. vii. NJSA 54:52-15: Purposeful Failure to Turn Over Tax: A person is guilty of a third-degree crime if after collecting or withholding taxes such person purposefully fails to turn over the tax to the Division. The crime is a second degree crime if the amount is $75,000 or more. IV. Collection Alternatives a. Deferred (Installment )Payment Plans: i. Individuals and businesses can file the Deferred Payment Request Form. ii. Guidelines: All required tax returns must be filed up to date with the New Jersey Division of Taxation. An account with delinquencies (returns not filed) will be denied a payment plan until the missing returns are submitted. The length of the plan may be from 3 to 36 months. The taxpayer must contact the assigned caseworker or the Deferred Payment Control Unit at (609) for approval. Interest will continue to accrue on the unpaid balance over the duration of the plan. A tax debt over $2,500, a taxpayer can be approved if the plan is less than 12 months, however, the taxpayer will receive a Certified Notice and Demand for payment letter, warning that a Certificate of Debt will be filed if the taxpayer defaults on the payment plan. For a tax debt over $2,500 and a plan that is more than 12 months, a Certificate of Debt will be filed against the taxpayer and a 10% cost of collection will be added to the debt. 6

15 b. Compromises: The basis for compromises are limited to only cases where there is doubt as to the liability of the taxpayer or the collectability of the tax can be compromised. N.J.S.A. 54:53-7. All civil and criminal penalties can be reduced or eliminated, unless the matter has already been referred to the Attorney General for further action. i. Compromise the time to pay: Time for payment is only compromised if the equities of the taxpayer s liability indicate that a compromise would be in the interest of the State and that the taxpayer would not suffer extreme financial hardship. i. Delayed payment or installment payments compromise agreements incur interest at 3 points above prime rate ii. The Director may compromise criminal liability and civil liability prior to sending the case to the Attorney General based on two (2) grounds: Doubt as to liability; or Doubt as to collectability i. No compromise if: iii. Compromise is final except: i. liability determined by a Court ii. liability is certain and there is no reasonable doubt as to the ability of the State to collect the amount owed Falsification or concealment of assets by taxpayers Mutual mistake of a material fact sufficient to cause the contract to be set aside; or Significant change in the financial condition of the taxpayer i. The Director may require periodic financial statements iv. Submission of an offer does not automatically stay collection Collection may be deferred if the interests of the State will not be jeopardized 7

16 v. Waiver of Statute of Limitations by Taxpayer: No offer in compromise will be accepted unless: i. Taxpayer waives the running of the statutory period of limitations on assessment or collection for: i. the time that the offer is pending ii. period during which any installment remains unpaid; or iii. for one year thereafter vi. Judicial Review of Offer in Compromise Submission V. New Jersey Taxpayer Advocate: New Jersey Tax Court should have jurisdiction to review the denial of a request for an offer in compromise. In cases where the Division does not process a request within a reasonable amount of time, the filing of a complaint in Superior Court in lieu of a prerogative writ may compel the Division to act on the request. i. Provides an avenue of independent review for taxpayers with State tax problems that they have been unable to resolve through normal channels or who are facing undue hardship as a result of action or inaction by the Division of Taxation. ii. The Office of Taxpayer Advocate: Provides free and independent assistance; Assists when NJ tax problem causes undue hardship; Assists taxpayers who could not resolve a problem through normal channels; Identifies system problems, including those that compromise taxpayer rights or unduly burdens them; and Recommends administrative or legislative reform. 8

17 iii. The Office of Taxpayer Advocate Does Not: Reverse legal or technical determinations; Bypass normal channels for problem resolution; Accept requests when a taxpayer did not use administrative or formal procedures that were available; Address cases involving the New Jersey Earned Income Tax Credit; or Address issues that were not previously raised with the Division of Taxation or other appropriate channel. iv. Cases are eligible for assistance when: The taxpayer faces a threat of immediate adverse action for a disputed liability, or the taxpayer believes that he did not receive adequate notification of the Division s actions or that the Division s actions are unwarranted, unfair, or illegal. The taxpayer experienced a delay of more than 120 days to resolve a tax account problem or in receiving a response to an inquiry to the Division. The taxpayer is experiencing undue hardship or is about to suffer undue hardship. VI. New Jersey Tax Assessment Procedures a. A deficiency means the amount of the tax due less the amount shown on the tax return less the amounts previously assessed as a deficiency plus the amounts of any rebates. N.J.S.A. 54A:9-2. b. Assessment: The amount of tax which a return shows to be due, or the amount of tax which a return would have shown to be due but for a math error, is deemed assessed on the date of filing the return. i. In the case of a return filed without computation of tax, the tax computed by the Director shall be deemed assessed on the date payment is due. ii. Any tax shall be assessed within three (3) years after the return was filed. Omission of income on the return. Tax may be assessed within six (6) years after the return was filed if: 9

18 iii. Exceptions: i. An individual omits from his New Jersey income an amount which is in excess of 25% of the amount of New Jersey income stated on the return. ii. A trust or estate omits income from its return in excess of 25% of its income determined as if it were an individual, computing its New Jersey income. Extension by agreement Report of change in Federal or corrected Federal income Recovery of erroneous refund Request for prompt assessment Assessment at any time if: i. no return is filed; ii. a false or fraudulent return is filed with intent to evade tax, or iii. the taxpayer fails to comply with N.J.S.A. 54A8-7 in not reporting a correction of Federal taxable income. c. If upon examination of a taxpayer s return, the Director determines that there is a deficiency of income tax, he may mail a notice of deficiency. i. The Director is authorized to estimate a taxpayer s income and tax if a taxpayers fails to file a return. ii. After 90 days from the mailing of the notice, such notice shall be an assessment of the amount of tax specified in the notice. d. No assessment, levy or proceeding in court for its collection can begin until: i. A notice of deficiency has been mailed to the taxpayer; ii. The expiration of the time to file a tax court petition; or iii. The final decision of the tax court has been rendered. iv. Notice of Federal Change Exception: if the taxpayer fails to comply with N.J.S.A. 54A:8-7 in not reporting a change or correction increasing his or 10

19 her Federal taxable income as reported on his or her Federal return or in not reporting a change or correction which is treated in the same manner as if it were a deficiency for Federal income tax purposes, or in not filing an amended return, the Director may assess a deficiency based upon such changed or corrected Federal taxable income by mailing to the taxpayer a notice of additional tax due specifying the amount due, and such amount due shall be deemed assessed on the date of such notice is mailed unless within 30 days after the mailing of the notice the taxpayers files a report of the Federal change or an amended return accompanied by a statement showing the errors. e. Additions to tax and civil penalties: i. Failure to file: unless it is due to reasonable cause and not due to willful neglect ii. Deficiency due to negligence: if to negligence or intentional disregard, a 10% penalty is added iii. Deficiency due to fraud: if deficiency due to fraud then 50% penalty iv. Non-willful failure to pay withholding tax v. Willful failure to collect and pay over tax vi. Failure to file certain information returns vii. Additional penalty: any person with fraudulent intent may be liable for an additional $5,000 penalty. viii. Additions treated as tax ix. Failure to file a declaration or underpayment of estimated tax: f. Statute of Limitations for Assessment: i. Corporate Business (Franchise) Tax: Four years. Generally no assessment of tax may be made after more than four years from the date on which the tax liability or claim accrued. With respect to false or fraudulent returns with intent to evade tax, and failure to file returns, the tax may be assessed at any time. N.J.S.A. 54:10A-19.1(d), N.J.S.A. 54:49-1 to 20; N.J.S.A. 54:49-6. However, if the taxpayer undergoes a federal audit that results in an adjustment, the time limitation imposed by N.J.S.A. 54:49-6 is extended by N.J.S.A. 54:10A-13 which provides: 11

20 i. If the amount of the taxable income for any year of any taxpayer as returned to the United States Treasury Department is changed or corrected by the Commissioner of Internal Revenue such taxpayer shall report such change or corrected taxable income within 90 days after the final determination or state wherein it is erroneous. Any taxpayer filing an amended return with such department shall also file within 90 days thereafter an amended report with the director. ii. The periods of limitations to make deficiency assessments under N.J.S.A. 54:49-6 and to file claims for refund under N.J.S.A. 54:49-14 shall commence to run for additional four year periods from the date that taxable income is finally changed or corrected by the Commissioner of Internal Revenue; provided, that the additional periods of limitation shall only be applicable to the increase or decrease in tax attributable to the adjustments in such changed or corrected taxable income. ii. Personal Income Tax: Three years The statute of limitations to assess additional tax is three years from the due date for the applicable return, or, if later, the date when the return was actually filed. N.J.S.A. 54A:9-4 If more than 25% of includable income is omitted from the amount reported in a return, and the omission is not disclosed, the tax may be assessed within six years after the return is filed. N.J.S.A. 54A:9-4 (d)(1) When a taxpayer reports a change or correction in federal income, the assessment may be made within two years after the report or amended return is filed. N.J.S.A. 54A:9-4(c)(3) Assessment may be made at anytime if: no return is filed; a false or fraudulent return is filed with intent to evade tax; or the taxpayer fails to comply with Section 54A:8-7, in not reporting a change or correction increasing his Federal taxable income as reported on his Federal income tax return, or in not reporting a change or correction which is treated in the same manner as if it were a deficiency for Federal income tax purposes, or in not filing an amended return..n.j.s.a. 54A:9-4(c)(1)(C) iii. Refund Claims 12

21 The statute of limitations expires on the later of three years from the date that the tax return was filed or two years from the date that a payment was made. N.J.S.A. 54A:9-8. If the refund claim is for an assessment that follows an audit, the refund claim is not precluded because the taxpayer did not challenge or protest the assessment. A refund claim is permitted, provided that the taxpayer: (1) pays the amount of tax assessed within one year from the date the protest period (90) days expired; and (2) files the refund claim within 450 days from the date that the protest period expired. Adjustments to Foreign Jurisdiction Credits: The statute of limitations does not apply for refunds based on a credit received for the payment of taxes to another jurisdiction provided that the taxpayer provides the Director with a timely notification of the adjustment. A taxpayer who did not claim the credit on his original tax return is precluded from claiming the credit based on a readjustment to the credit from another jurisdiction. Example: Taxpayer files his tax return but does not claim a credit for taxes paid to New York. New York conducts an audit and redetermines his New York tax liability in a manner that increases the liability. The taxpayer files an amended New Jersey income tax return that reports a credit for the increased New York tax liability. The amended return is filed after the period of limitation provided in N.J.S.A. 54A:9-8 and is the first return that reports the credit. The taxpayer is not entitled to the refund. See Bernard v. Director, Division of Taxation, 2014 WL (App. Div. 2015). iv. Notice of Federal Change A taxpayer is required to notify the Division within 90 days from the date of the notification that indicates that the IRS has changed the taxpayer s liability. A taxpayer who does not comply with this requirement is precluded from claiming a refund based on the Federal adjustment. A taxpayer who does not comply with this requirement is precluded from claiming that the Division is bound by the IRS s audit determinations. The Division is free to conduct its own audit and reach conclusions that are not consistent with the conclusions reached by the IRS. 13

22 A taxpayer who does not comply with this requirement is precluded from seeking a discharge of his New Jersey tax liabilities for the years in which the Notice of Federal Change was not timely filed. 14