ASSEMBLY, No. 4473

STATE OF NEW JERSEY

221st LEGISLATURE

 

INTRODUCED JUNE 3, 2024

 


 

Sponsored by:

Assemblyman  DAN HUTCHISON

District 4 (Atlantic, Camden and Gloucester)

 

 

 

 

SYNOPSIS

     Eliminates statute of limitations on income tax assessments that arise out of erroneous refunds induced by fraud.

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Act concerning statutes of limitations on certain gross income tax assessments and amending N.J.S.54A:9-4.

 

     Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

     1.    N.J.S.54A:9-4 is amended to read as follows:

     54A:9-4. (a) General. Except as otherwise provided in this section, any tax under this act shall be assessed within [3] three years after the return was filed (whether or not such return was filed on or after the date prescribed).

     (b) Time return deemed filed.

     (1) Early return.  For purposes of this section a return of income tax, except withholding tax, filed before the last day prescribed by law or by regulations promulgated pursuant to law for the filing thereof, shall be deemed to be filed on such last day.

     (2) Return of withholding tax.  For purposes of this section, if a return of withholding tax for any period ending with or within a calendar year is filed before April 15 of the succeeding calendar year, such return shall be deemed to be filed on April 15 of such succeeding calendar year.

     (c) Exceptions.

     (1) Assessment at any time.  The tax may be assessed at any time [if--] if:

     (A) No return is filed[,] ;

     (B) A false or fraudulent return is filed with intent to evade tax, regardless of whether the false or fraudulent return results in a refund to the taxpayer, which false or fraudulent return shall not include a taxpayer’s inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness; or

     (C) The taxpayer fails to comply with N.J.S.54A:8-7, in not reporting a change or correction increasing the taxpayer's Federal taxable income as reported on [his] the taxpayer’s 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, in not filing an amended return, or, for both partners and partnerships, in not reporting final federal adjustments resulting from a partnership audit pursuant to section 6225(a)(1) of the Internal Revenue Code (26 U.S.C. s. 6225(a)(1)).

     (2) Extension by agreement.  Where, before the expiration of the time prescribed in this section for the assessment of tax, both the director and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon.  The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

     (3) Report of changed or corrected Federal income.  If the taxpayer shall, pursuant to subsection a. of N.J.S.54A:8-7, report a change or correction or file an amended return increasing the taxpayer's Federal taxable income or report a change or correction which is treated in the same manner as if it were a deficiency for Federal income tax purposes, the assessment (if not deemed to have been made upon the filing of the report or amended return) may be made at any time within [2] two years after such report or amended return was filed.  The amount of such assessment of tax shall not exceed the amount of the increase in New Jersey tax attributable to such Federal change or correction.  The provisions of this paragraph shall not affect the time within which or the amount for which an assessment may otherwise be made.

     (4) Recovery of erroneous refund.  An erroneous refund shall be considered an underpayment of tax on the date made[, and an] .  An assessment of a deficiency arising out of an erroneous refund may be made [at any time] : within [3] three years from the making of the refund[, except that the assessment may be made within 5 years from the making of the refund if] ; or at any time if it appears that any part of the refund was induced by [fraud or misrepresentation of a material fact] the filing of a false or fraudulent return with intent to evade tax, which false or fraudulent return shall not include a taxpayer’s inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness.

     (5) Request for prompt assessment.  If a return is required for a decedent or for the decedent's estate during the period of administration, the tax shall be assessed within 18 months after written request therefor (made after the return is filed) by the executor, administrator or other person representing the estate of such decedent, but not more than [3] three years after the return was filed, except as otherwise provided in this subsection and subsection (d).

     (6) Final federal adjustments resulting from a Federal Partnership Audit.  Tax may be assessed against the partnership, direct or indirect partners, or both, within two years of the time that a partnership files a Federal Adjustments Report as required by N.J.S.54A:8-7 that includes Final Federal Adjustments from a federal partnership audit or administrative adjustments request that would result in additional New Jersey income tax for one or more direct or indirect partners.

     (d) Omission of income on return.  The tax may be assessed at any time within [6] six years after the return was filed [if--] if:

     (1) An individual omits from [his] the individual’s New Jersey income an amount properly includible therein which is in excess of [25%] 25 percent of the amount of New Jersey income stated in the return; or

     (2) An estate or trust omits income from its return in an amount in excess of [25%] 25 percent of its income determined as if it were an individual, computing [his] the individual’s New Jersey income under this act.

     For purposes of this subsection there shall not be taken into account any amount which is omitted in the return if such amount is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the director of the nature and amount of such item.

     (e)   Suspension of running of period of limitation.  The running of the period of limitations on assessment or collection of tax or other amount (or of a transferee's liability) shall, after the mailing of a notice of deficiency, be suspended for the period during which the director is prohibited under subsection (c) of [section] N.J.S.54A:9-2 from making the assessment or from collecting by levy.

(cf: P.L.2022, c.133, s.4)

 

     2.  This act shall take effect immediately and shall retroactively apply to assessments of deficiencies arising out of erroneous refunds, which were subject to assessment pursuant to paragraph (4) of subsection (c) of N.J.S.54A:9-4 and were made within the five years preceding the date of enactment of this act. 

 

 

STATEMENT

 

     This bill would eliminate a conflict between two fraud exceptions contained in current State law governing the statute of limitations for tax assessments under the “New Jersey Gross Income Tax Act.”

     Under current law, the Division of Taxation (“division”) in the Department of the Treasury is required to assess additional taxes within three years after a taxpayer has filed a tax return.  However, this three-year statute of limitations does not apply in certain cases, including when a taxpayer has filed a false or fraudulent return.  In other words, the division may issue an assessment at any time if a taxpayer files a false or fraudulent return with the intent to evade tax. 

     Current law also authorizes the division to issue an assessment for a deficiency arising out of an erroneous refund within three years from the issuance of the refund.  This statute of limitations is extended to five years in cases in which any part of the refund was induced by fraud or misrepresentation of a material fact.  The statute, however, does not explicitly define “fraud” or “misrepresentation of a material fact,” which has led to questions concerning whether the statute treats fraud as having a standard that is different from misrepresentation of a material fact.  

     This bill seeks to eliminate the disparity in treatment between when: 1) a taxpayer files a false or fraudulent return, in which case the division may assess additional taxes at any time; and 2) a fraudulent return yields a refund to a taxpayer, in which case the division may assess additional taxes within five years from the issuance of the refund.  Specifically, the bill would eliminate the five-year statute of limitations on assessments for erroneous refunds that are induced by fraud.  With this change, the bill provides that the division may assess additional taxes at any time if it appears that any part of an erroneous refund was induced by the filing of a false or fraudulent return with intent to evade tax.  This change would eliminate the current conflict between the two fraud exceptions and specifies that the filing of a false or fraudulent return would not include a taxpayer’s inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness.  The bill eliminates the use of the term “misrepresentation of a material fact.” 

     Finally, the bill’s provisions would take effect immediately and would apply retroactively to assessments of deficiencies arising out of erroneous refunds that were made within the five years preceding the date of enactment of the bill.