September 21, 2012

New Jersey Announces Voluntary Disclosure Initiative For Intangible Asset Income

Contributor John Heilmann, Manager, Tax & Business

New Jersey Announces Voluntary Disclosure Initiative For Intangible Asset Income Tax & Business

Recognizing that many companies may have a tax filing obligation with New Jersey as a result of deriving income from the use of intangible assets in the state, the New Jersey Division of Taxation recently announced a limited voluntary disclosure initiative for companies that own such assets and derive income from the use of those assets in New Jersey. “Intangible assets” are generally those types of assets that produce such types of income including interest (on loans) or royalties (for the use of trademarks/tradenames/patents etc). Out-of-state companies that derive these types of income from New Jersey sources are required to file tax returns in New Jersey.

The amnesty program began September 15, 2012 and runs through January 15, 2013. As disclosed on the New Jersey Division of Taxation website, all of the standard procedures and requirements apply to companies who participate in this initiative, as well as the following:

  • The look back period will be limited to the periods beginning after December 31, 2003.
  • The full tax liability must be paid within 90 days of the execution of the voluntary disclosure agreement.
  • The Division will waive all penalties except a 5% amnesty penalty for all returns due prior to February 1, 2009.
  • Upon assessment, the taxpayer must pay the interest and amnesty penalty within 30 days.
  • The Division will consider discretionary throwout relief by averaging a throwout receipts fraction with a non-throwout receipts fraction.
  • Companies that added royalties back to their entire net income in prior years may submit amended returns to claim an exception to the add-back. This applies to any period where the statute of limitations remains open.
  • All returns will be subject to routine audit with respect to issues not specifically covered in the voluntary disclosure agreement.
  • Any settlement with respect to the throwout issue will be binding on the taxpayer and the Division. The taxpayer may not file a claim for refund even if future Court decisions would provide a different result.
  • The throwout issue does not need to be settled prior to the agreement. The Division would conduct an audit on the returns filed under the disclosure agreement to make the required throwout determination.

The application process under the New Jersey amnesty program is done by filing a letter outlining the facts of the specific case and forwarding such letter to designated individuals within the New Jersey Division of Taxation. Each letter will be reviewed and either approved or disallowed for participation in the amnesty program. There is no on-line application or standard form to be used to participate in this program.

Should you have any questions or require additional information on this initiative or on determining whether your company has a filing obligation with New Jersey under these circumstances please contact your Marcum LLP SALT professional.

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