LIVINGSTON, NJ — After Gov. Phil Murphy signed a law earlier this month granting amnesty to anyone behind on taxes owed between Feb. 1, 2009 and Sept. 1, 2017—as long as the individual is not under criminal investigation—Sobel & Co. member Ken Bagner, CPA, MST, shed light on the pros and cons of the new tax amnesty program in New Jersey.

The new legislation includes total forgiveness of both the penalties and of the high costs of collection fees along with one-half of accrued interest. But according to Bagner, there is a down side. 

“If eligible taxpayers refuse to take advantage of the offer of amnesty, they will be penalized,” he said. “An additional (unwaivable) five-percent penalty will be automatically imposed on top of the already existing penalties and interest on any tax liability that would have been forgiven under the amnesty program.”

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Under the new initiative, Bagner explained that the director of the New Jersey Division of Taxation will soon announce a start date for the program and establish a period not exceeding 90 days and concluding no later than Jan. 15, 2019. During this time, all penalties and one half of the accrued interest that are due as of Nov. 1, 2018 will be forgiven in return for payment of the tax, which will be nonrefundable, according to Bagner. The remaining half will be due and a waiver of the right to appeal any liability paid under amnesty will be required.

Taxes that qualify under the amnesty initiative include:

  • Unassessed amounts as well as amounts that are under audit or are being contested with the Division of Taxation (at either its Conference Branch or in the tax court).
  • All state taxes administered by the Division of Taxation. (It does not apply to unemployment-type taxes administered by the Department of Labor.)
  • State tax liabilities for tax returns due on and after Feb. 1, 2009 and prior to Sept. 1, 2017, including Gross Income Tax, Corporate Business Tax returns, and for all sales and use tax quarters ending Dec. 31, 2009 through June 30, 2017.

Since the start date for this program has not yet been determined, Bagner stated that individuals who want to claim amnesty should contact their CPA or financial advisor in advance and work together now to connect with the Division of Taxation.

“By being proactive they can determine the correct amount they owe so that they have ample time to comply before the amnesty period ends on Jan. 15, 2019,” he said.

He also stated that amnesty does not apply to individuals under criminal investigation, or who are certified as being charged with a state tax matter.

“It is not completely clear how this section will be interpreted, but it is suspected that anyone whose case has not been referred for prosecution to the Attorney General's Office may participate in the program,” said Bagner, who also commented on whether the state will inform the IRS of the delinquent tax situation.

“The worry of being ‘turned in’ [to the IRS] doesn’t need to be of concern to anyone seeking amnesty because the NJ Division of Taxation has already stated that it doesn’t intend to provide any information obtained through the amnesty program to the Internal Revenue Service,” said Bagner. “However, if the IRS specifically requests amnesty-related data, the NJ Tax Division will comply.

Although it is not anticipated that a taxpayer's chances of being audited will be increased by an amnesty program filing, Bagner said there might be other concerns for the taxpayer, and that all issues should be thoroughly discussed with an experienced professional.

According to Bagner, the 2018 amnesty program is designed to bring the taxpayer potential savings regarding outstanding tax liabilities. However, given the limited duration of the program and the potential for confusion regarding the proper calculations, he said that involved individuals should begin to determine how to structure their amnesty arrangements as soon as possible.

To contact Bagner will any questions regarding this legislation, call (973) 994-9494 or Email Kenneth.Bagner@SobelCoLLC.com.