On December 31, 2024, the Tax Court of New Jersey granted summary judgment to taxpayers contesting a $2.1 million assessment (including penalties and interest) based on Section 965 repatriated income under the 2017 Tax Cuts and Jobs Act. The case is Amin v. Director, Division of Taxation, Docket No. 007430-2022 (Tax Court of New Jersey, December 31, 2024).
New Jersey’s Gross Income Tax Act (GIT Act) follows federal rules in several areas and requires taxpayers to follow federal methods of accounting for GIT purposes. However, the GIT Act also contains specific definitions that cannot be overridden by general references to federal rules. Most importantly, New Jersey specifically defines dividends to require an actual distribution in cash or property from current or accumulated corporate earnings or profits. Because the taxpayers did not receive any amounts from the controlled foreign corporations (CFCs) in which they were shareholders, they did not receive any dividends under New Jersey law. The use of federal methods of accounting or federal tax requirements could not change this simple fact of state law. If state law did not require inclusion of a certain type of income, it did not need to be included on returns.
This meant that interim guidance provided by the New Jersey Division of Taxation advising taxpayers to include Section 965 repatriation dividends in their New Jersey gross income was an invalid administrative rulemaking and could not be enforced.
This case turns on what New Jersey statutes explicitly include in the income base for gross income tax, which applies to individuals, estates, and trusts. The rules are different for corporations; therefore, there is no impact to the treatment of 965 income recognition for New Jersey corporate income tax purposes. Additionally, for many taxpayers, the victory only defers tax on Section 965 repatriation income as the Court observed that “[o]nce such distribution is made, plaintiffs should report the same as income.”
If you have questions about your income tax obligations in New Jersey or other states, reach out to one of the experts listed below today.
TECHNICAL INFORMATION CONTACTS:
Greg Rottjakob
Principal
Ryan
813.568.9085
greg.rottjakob@ryan.com
Joseph Schmidt
Director
Ryan
704.552.0722
joseph.schmidt@ryan.com
Jonathan Geiger
Manager
Ryan
425.440.2333
jonathan.geiger@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.
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- Greg Rottjakob
- Income Tax
- New Jersey