New Jersey is launching a compliance initiative that will allow members of combined filing groups who owe New Jersey state tax from periods prior to 2019 to voluntarily come forward with reduced consequences. If non-filers participate in the program — running June 15, 2021, through October 15, 2021 — and remit past due returns, tax and interest, the state will waive penalties and limit the lookback period to 2016 through 2018.
Background on the CBT Combined Filer Nexus Initiative
In 2019, New Jersey began requiring qualifying corporate taxpayers to file one combined unitary state income tax return. A qualifying unitary group is one in which there is common ownership, represented by 50% or more voting control for each member either directly or indirectly, and where the unitary group members are sufficiently interdependent, integrated, and have interrelated activities that provide synergies and mutual benefit.
Each member of the combined group, regardless of whether they have nexus with the state, is disclosed on the unitary return as is a description of each entity’s New Jersey activities. New Jersey has begun mining the unitary CBT return (Form CBT-100U) disclosures to identify entities that failed to file prior to the 2019 combined reporting requirement.
Before pursing those non-filers, New Jersey is providing corporations an opportunity to evaluate their historic nexus activity and address identified corporate tax exposures via its new compliance initiative.
Requirements of New Jersey’s Compliance Program
To participate, a non-filing corporation must:
- Not have been incorporated in New Jersey, authorized or registered to do business in New Jersey prior to 2019.
- Provide its managerial member’s tax registration number and file returns for the 2016 through 2018 tax years.
- Pay any tax due within 45 days of executing the closing agreement. The state will issue an assessment for any associated interest, which must be paid within 30 days.
Significant Consequences of Not Participating
Businesses that fail to come forward by October 15, 2021, will be prohibited from participating in New Jersey’s standard voluntary disclosure program. If a non-filing business is identified and audited, the business may be subject to penalties of up to 30% and may be required to file returns prior to 2016 to the extent the company had nexus. Of concern is that when New Jersey has identified non-filers in the past, the audit department has threatened the state may require companies to file CBT returns as far back as 1946.
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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.