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October 10, 2012

Taxpayer Relief Available in New Jersey, Kentucky and Rhode Island (article)

One of the challenges of operating a multistate business is managing the tax obligations in the various states. As no two states are alike when it comes to their tax regimes, you may discover that your business has a taxable presence in a state in which taxes have not been paid. Fortunately, many states will periodically offer amnesty or voluntary disclosure programs that allow taxpayers to "come clean" and self-report back taxes without incurring as much in penalties as the state would have assessed upon its own discovery of the deficiency. Three such programs are currently available in New Jersey, Kentucky and Rhode Island.

New Jersey Intangible Asset Nexus Initiative

From September 15, 2012 to January 15, 2013, the New Jersey Division of Taxation ("Division") will launch its Intangible Asset Nexus Initiative ("Initiative"). New Jersey Division of Taxation Notice, Intangible Asset Nexus Initiative (9/18/2012). The Initiative will allow companies which own intangible assets and that derived income from the use of those assets in New Jersey, the opportunity to enter into limited voluntary disclosure agreements ("VDAs") with regard to their New Jersey corporation business tax filing requirements. In addition to New Jersey’s standard procedures and requirements for VDAs, these businesses will also have the following requirements:

  • The look-back period will be limited to the periods beginning after December 31, 2003, or the date business commenced, whichever is later. 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 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 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 them 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.
  • All returns will be subject to routine audit with respect to issues not specifically covered in the VDA.
  • 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 in the event that the application of any future court decisions would suggest a different result.
  • If the disclosure candidate does not wish to settle the throwout issue, the Division will hold the issue for a future determination. The Division would conduct an audit on the returns filed under the disclosure agreement to make the required throwout determination.

While the Initiative does represent an opportunity for taxpayers to come forward and eliminate tax exposure relating to prior periods, taxpayers should carefully evaluate the amnesty provisions in light of their factual situations to gain a complete understanding of the financial, tax, and legal implications of entering such a program.

Kentucky Tax Amnesty Program

Between October 1, 2012 and November 30, 2012, the Kentucky Department of Revenue ("Department") will run a "Good for You. Good for Kentucky" Tax Amnesty Program ("Kentucky Amnesty Program"). Under the Kentucky Amnesty Program, the Department will waive 1) any civil and criminal penalties and fees assessed for the tax years or periods for which the tax amnesty is requested and granted, and 2) half of the interest accrued on the tax liability involved in the amnesty. 2012 KY HB 499. However, the Department will impose additional interest and significant penalties and collection fees if a taxpayer fails to disclose an amnesty-eligible tax liability during amnesty.

The Kentucky Amnesty Program is generally available on taxes, penalties, fees, or interest for all Kentucky taxes except for certain ad valorem taxes on real property, personal property, motor vehicles, and motor boats, and for penalties related to certain cigarette tax-related violations. The Kentucky Amnesty Program also allows taxpayers who have received an assessment, notice, or demand for payment from the Department to participate. However, those taxpayers who are the subject of a pending criminal investigation or criminal litigation on the day of their application for amnesty are ineligible. The Kentucky Amnesty Program requires that the taxpayer must file an application, file all returns or amended returns for tax periods that have not been filed or were underreported, pay all tax owed in full, and timely file all returns and make all payments due for three years following the program.

Rhode Island Tax Amnesty Program

From September 2, 2012 to November 15, 2012, the Rhode Island Division of Taxation is offering a Tax Amnesty program ("Rhode Island Amnesty Program"), which will allow certain taxpayers to pay the full amount of overdue taxes plus seventy-five percent of any interest due, without having to pay the remaining interest and any penalty amounts due and without being subject to any other civil or criminal penalties for taxable periods ending on or before December 31, 2011. Rhode Island General Laws Chapter 44-6.4, June 15, 2012. The Rhode Island Amnesty Program covers all Rhode Island taxes. The only taxpayers excluded from the Rhode Island Amnesty Program are those facing criminal investigation and those that are party to any civil or criminal proceeding pending in any court of the United States or the State of Rhode Island, for fraud in relation to any State tax imposed by the laws of the State and collected by the Tax Administrator.

While many amnesty programs are more restrictive on their eligibility requirements, Rhode Island, similar to Kentucky’s program, has relatively few exceptions to eligible participation. As a result, taxpayers should carefully evaluate their Rhode Island tax exposures to determine if the resulting benefits of reduced interest and waiver of penalties are warranted.

Questions

If you have any questions about the New Jersey Initiative, the Kentucky Amnesty Program, the Rhode Island Amnesty Program or any other state tax amnesty program, please contact your CBIZ tax advisor.

 


Copyright © 2012, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. To ensure compliance with requirements imposed by the IRS, we inform you that-unless specifically indicated otherwise-any tax advice in this communication is not written with the intent that it be used, and in fact it cannot be used, to avoid penalties under the Internal Revenue Code, or to promote, market, or recommend to another person any tax related matter. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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