Uneasy Link Between Federal Income Tax And NJ Gross Income Tax
by James F. McDonough, Jr. on September 6, 2013
There is a difficult and uneasy relationship between the Federal Income Tax (FIT) and the New Jersey Gross Income Tax (NJGIT). Despite the fact that the income for FIT purposes is the starting point for NJGIT purposes, there are significant differences. One observation is that NJGIT is unfriendly when it comes to the types of deductions allowed, the ability to carry losses to other years, and offsetting income and losses from different categories.
In Warsal v. Director, the differences between a FIT non-business bad-debt loss and NJGIT treatment is readily apparent. Although NJGIT permits some losses to be recognized, it does not provide for federal treatment to carryover to New Jersey in every case. The issue was whether the bad debt owed by a family member was a sale or disposition for NJGIT purposes. The court held that it was not and therefore was not deductible. Although the debt was deductible for federal purposes as a non-business bad debt that theory was not recognized for NJGIT. The taxpayer advanced the theory that the debtor’s non-payment constituted a “disposition” under state law which permitted the taxpayer to recognize gain or loss.
Firefox recommends the PDF Plugin for Mac OS X for viewing PDF documents in your browser.
We can also show you Legal Updates using the Google Viewer; however, you will need to be logged into Google Docs to view them.
Please choose one of the above to proceed!
LOADING PDF: If there are any problems, click here to download the file.