Abatement of the NJ Amnesty Non-Participation Penalty is Still Possible for Some Taxpayers

The Praxair (Praxair Technology, Inc. v. Director, Div. of Taxation, N.J. App. Div., Docket No. 4-6262-06T3 (Sept. 1, 2010) case involved a taxpayer that received its assessment prior to the start of amnesty. If you receive an assessment after amnesty ends, the non-participation penalty may not apply. This follows from United Parcel Service General Services Co. (United Parcel Service General Services Co. v. Director, Div. of Taxation, 25 N.J. Tax 1 (Tax 2009)) which involved a taxpayer that was issued an assessment after amnesty had already closed.

In UPS, the Tax Court concluded that the Division had properly imputed interest on certain intercompany transactions. As in Praxair, the Division assessed a 5 percent non-participation penalty on the tax deficiency. Unlike Praxair, however, the Tax Court concluded that the non-participation penalty was inappropriate. Under the statute (N.J.S.A. 54:53-17b and -18b) the non-participation penalty applies only to “tax liabilities eligible to be satisfied [but] . . . that were not satisfied during the amnesty period.” And the court interpreted this to mean “liabilities which, during the applicable amnesty period, were known to the taxpayer or which, by reasonable inquiry, could have been known.” Because UPS acted in good faith and did not know (and, by reasonable inquiry, could not have known) that additional taxes were due, the court struck the penalty.

The amnesty statute at issue in UPS is nearly identical to the 2009 amnesty statute (N.J.S.A. 54:53-19). This is important for a taxpayer that gets assessed a penalty for failing to participate in the 2009 amnesty program. If the assessment is issued after June 15, 2009 (when the 2009 amnesty program ended), and the taxpayer reasonably did not know that additional taxes were due, the non-participation penalty should be abated based on UPS.

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