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New Jersey Adoption of the Federal Partnership Tax Audit Regime

P.L. 2022, c. 133 adapted the New Jersey Gross Income Tax laws to the federal centralized partnership audit regime enacted as part of the federal 2015 Bipartisan Budget Act. The law applies to any adjustments to a taxpayer's federal taxable income on or after January 1, 2020.

Partnerships Subject to a Final Federal Adjustment

Within 90 days after the final federal adjustments and determination of the change or correction, partnerships must do the following (except for those making an election below under the Partnerships Pay - Election Method):

• Submit the Federal Adjustments Report to the Division of Taxation's Gross Income Tax Audit Branch;
• Amend and file their NJ-1065s, NJ-1080-Cs, and NJK-1s for the reviewed year; and
• Notify each of its direct partners of their distributive share of the final federal adjustments including other information required by the Division.

There are two ways to report adjustments and pay the tax due.

Within 180 days after the final determination date (unless otherwise noted):

Partners Pay - New Jersey Default Method

The New Jersey default method requires that the adjustments pass through to the partners of the reviewed year.

The partners of the reviewed year must do the following:

• File their amended New Jersey Gross Income Tax or Corporation Business Tax returns and include documentation received from the partnership showing their distributive share of the final federal adjustments as explanation; and
• Pay any additional taxes plus any additional penalty and interest.

Partnerships Pay – Election Method

The second method allows a partnership to make an election to pay additional tax, penalty and interest on their partners' behalf. The partnership must do the following:

• Notify the Division of Taxation's Gross Income Tax Audit Branch that it is making the election within 90 days of the final determination date;
• Submit the Federal Adjustments Report to the Division of Taxation's Gross Income Tax Audit Branch within 90 days of the final determination date;
• Submit the Amended NJ-1065s and NJK-1s to the Division of Taxation's Gross Income Tax Audit Branch within 90 days of the final determination date; and
• Remit the payment of additional tax plus any penalty and interest due along with a copy of the previously submitted Federal Adjustments Report to the New Jersey Division of Taxation's Gross Income Tax Audit Branch no later than 180 days from the final determination date.

Note that partnerships can only use the procedures for the Partnership Pays - Election Method to file and pay under the federal centralized partnership audit regime to adjust NJ-1065s if they were audited by the IRS. These procedures do not apply if the entity elected to participate in the federal centralized partnership audit regime, but were not audited by the IRS. In addition, New Jersey does not accept or process Form 8082.

The Federal Adjustments Report

A Federal Adjustments Report as required by N.J.S.A. 54A:8-7 or N.J.S.A. 54:10A-13 is used by a taxpayer to report final federal adjustments and must include both a copy of the federal determination and a detailed statement explaining the change in New Jersey source income.

State Partnership Representative

The State partnership representative has the sole authority to act on behalf of the partnership, and the partnership's direct partners and indirect partners are bound by those actions. The State partnership representative should be the same person who represents the partnership for federal tax purposes.

If the partnership wants to designate some other person, they must put their request in writing to the Division of Taxation's Gross Income Tax Audit Branch.

The mailing address for the Division of Taxation's Gross Income Tax Audit Branch is New Jersey Division of Taxation, Gross Income Tax Audit Branch, PO Box 288, Trenton, NJ 08695-0288, Attention: Chief.

More Information

P.L.2022, c.133 is available .