New Jersey Voluntary Disclosure Initiative

The State of New Jersey is encouraging taxpayers to voluntarily disclose income earned from intangible assets deployed in that state. The Division of Taxation is now offering a limited voluntary disclosure and resolution procedure that will remain available to taxpayers until January 15, 2013.  The program requires that the taxpayer enter into a Voluntary Disclosure Agreement (VDA) with the Division of Taxation and file Corporate Business Tax (CBT) returns for open years. Some of the pertinent features of the disclosure program are:

The look-back period will be limited to the periods beginning after December 31, 2003, or the date business commenced, whichever is later. Â Returns for prior periods will not be required.

The taxpayer must file all required returns and remit payment of the full tax liability reported within 90 (ninety) days of the execution of its VDA.

The Division will waive all penalties except that a 5% amnesty penalty will be assessed for all returns due prior to February 1, 2009. The taxpayer will remit payment of interest and the amnesty penalty within 30 (thirty) days of assessment.

The Division will consider discretionary throwout relief by averaging a throwout receipts fraction with a non-throwout receipts fraction.

Operating companies or those companies that have paid royalties and added same back to their New Jersey entire net income may submit amended returns for any period for which the statute of limitations remains open in order to claim an exception to the add back.

To be eligible for this initiative, the taxpayer may not already be under audit or have had prior contact from the Division of Taxation or its agents concerning the issues that are the subject of the VDA.

The State of New Jersey is aggressive with its corporate audits, and so this initiative may provide welcome relief to some New Jersey corporate taxpayers. Others will remain hesitant to come forward, however, due to (a) the length of the look-back period; (b) the 5% amnesty penalty, which applies to 6 to 8 years covered by this initiative; and (c) the limitation on an operating company's ability to amend returns and claim relief from the add-back statute.