Taxpayer’s Addback Exception Upheld


On August 31, 2010, the New Jersey Tax Court upheld a taxpayer’s “unreasonable exception” from the New Jersey related party addback statute. With the growth of related party addback provisions (22 jurisdictions currently impose related party addback provisions), the ability to qualify for exceptions from addback requirements is growing in importance. While a few cases have been decided in other states, (e.g., VFJ Ventures, Inc. (Alabama) and Family Dollar Stores of Ohio, Inc. (Ohio)), Beneficial New Jersey, Inc. is the first New Jersey case to address the related party addback.

I. Background

Beneficial New Jersey, Inc. (BNJ) is a subsidiary of HSBC Finance Corp. (HSBC) and is primarily engaged in providing loans to customers. BNJ borrowed capital from HSBC to conduct its lending operations. The rate of interest charged from HSBC to BNJ for this intercompany loan was set at the maximum Applicable Federal Rate. BNJ and HSBC did not have a written loan agreement for the audit period of 2002-2004. Rather, BNJ and HSBC entered into a “Funding Agreement” dated December 30, 2005, and had an unwritten understanding prior to the execution of the Funding Agreement. BNJ deducted the interest paid to HSBC for New Jersey income tax purposes. The Director of the Division of Taxation (Director) disallowed these deductions. BNJ and HSBC filed cross motions for summary judgment.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sutherland Asbill & Brennan LLP | Attorney Advertising

Written by:


Sutherland Asbill & Brennan LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.