ARTHUR G. NEVINS, JR. v. DIRECTOR, DIVISION OF TAXATION
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
ARTHUR G. NEVINS, JR. : TAX COURT OF NEW JERSEY
and AMANDA NEVINS, : DOCKET NO.: 013075-2015
:
Plaintiffs, :
:
v. : Approved for Publication
In the New Jersey
:
Tax Court Reports
DIRECTOR, DIVISION OF TAXATION,
:
Defendant. :
:
Decided: January 8, 2019
Arthur G. Nevins, Jr., for plaintiffs (Pro se) 1.
Abiola G. Miles for defendant (Gurbir S. Grewal, Attorney General
of New Jersey, attorney).
BIANCO, J.T.C.
This opinion shall serve as the court’s determination of cross-motions for summary
judgment concerning the appeal by plaintiffs, Arthur G. Nevins, Jr., and Amanda Nevins (the
“Nevinses”), of the final determination by defendant, the Director of the Division of Taxation (the
“Director”) with regard to the Nevinses’ 2008 New Jersey gross income tax (“GIT”). The
Nevinses move to bar the Director’s claim for the GIT deficiency and to annul the Director’s final
determination, alleging that the Director failed to timely assess their 2008 GIT within the
applicable limitations period under N.J.S.A. 54A:9-4(a). In opposition, the Director moves to
dismiss the complaint with prejudice claiming that, exceptions to the statute of limitations under
N.J.S.A. 54A:9-4(c) apply as the Nevinses failed to report to the New Jersey Division of Taxation
1
Arthur G. Nevins, Jr., is not appearing pro se in the traditional sense but rather, he is a licensed
attorney in the State of New Jersey representing himself and Amanda Nevins.
1
(“Taxation”) one or more changes to their 2008 federal taxable income made by the Internal
Revenue Service (“IRS”) within ninety days (90) after the final determination of such change.
For the reasons set forth herein, the Nevinses’ motion is denied, and the Director’s motion
dismissing the complaint is granted.
BACKGROUND, FACTS, AND PROCEDURAL HISTORY
On March 24, 2009, the Nevinses timely filed a 2008 GIT return (“NJ-1040”) that included
on Line 17 an amount of $29,806 as net profits from business which was a net of (1) $63,786 loss
from Mr. Nevins’s law practice in New York ($120,000 gross receipts, less “cost of goods,” less
expenses) reported on Schedule C; (2) $100,043 profit from his law practice in New Jersey
($892,789 gross receipts, less “cost of goods,” less expenses), reported on Schedule C; and (3)
$6,452 loss from farming, reported on Schedule F. 2 A property tax deduction of $10,000 was
taken on Line 36c to reduce the taxable income.
On January 11, 2010, Taxation received the Nevinses’ amended 2008 GIT return (“NJ-
1040X”), which showed net profits from business decreased to an amount of $23,965, and local
property tax deduction decreased from $10,000 to $5,750. The explanation accompanying the
changes noted that New Jersey only allowed a property tax deduction for improved property
(which had a house on it), thus, the tax deduction on Line 36c was reduced to $5,750. The “rest
of the property appearing” (sic) on Line 17, thus, $5,841 (“Sch F”) was used to reduce business
income to $23,965. Accordingly, the Nevinses’ 2008 GIT was decreased by $28, which Taxation
applied to satisfy a 2005 tax year underpayment.
2
The “cost of goods” was $80,040 and $598,169 respectively, and explained as “Client
Settlements” relative to the respective New York and New Jersey law offices.
2
On August 16, 2010, the Nevinses received an IRP Reconciliation Workpaper
(“Workpaper”) from Donna Temmel (“Ms. Temmel”), an IRS representative. The Workpaper
showed an inconsistency between the income reported by the Nevinses on their 2008 federal
income tax return (“US-1040”) and the income which was reported on Form 1099-MISC, which
were filed with the IRS by the payors. According to the Workpaper, a total of $1,304,038 should
have been reported as income whereas only $1,012,789 was reported by the Nevinses, leaving an
unreported amount of $291,249. The $1,304,038 represented attorney fees paid by 14 entities (two
of which, United States Fire Ins. Co. and European Country Kitchens, were listed as having paid
“non-employee” compensation of $26,877 and $59,661 respectively). One such entity was
Gallagher Bassett Services, which had reported a payment of $325,000. The Nevinses’ 2008 US-
1040 reported attorney fees from only two entities, American Internal Group and AIIC of New
Jersey, however, in amounts larger than reported on the 1099-MISC ($120,000 and $892,789
shown on return as opposed to $45,000 and $250,000 shown on the 1099-MISC 3). Thus, although
income from the remaining 12 entities totaled $1,009,038, the over-reporting caused the net
variance to be $291,249. Additionally, the Workpaper also showed that the Nevinses failed to
report $2,325 of refund from the State of New Jersey on 1099-G.
The Nevinses claimed that the inconsistent reporting was because they failed to include an
“insurance payment” from Gallagher Basset Services, at the very end of the year, since they did
not receive a 1099. Accordingly, they notified their tax preparer, Henry Meyer (“Mr. Meyer”) on
August 18, 2010 and August 24, 2010 with regard to the Workpaper, and provided him with the
IRS’ Form 2848 (a power of attorney to act on their behest before the IRS). Mr. Meyer certified
3
Note that the Nevinses’ 2008 NJ-1040 also reported only $120,000 and $892,789 as business
income from Mr. Nevins’s New York and New Jersey law practice.
3
that he then contacted Ms. Temmel on August 24, 2010 and faxed her a proposed amended federal
return (“US-1040X”), which once approved by the IRS, would be followed by the filing of another
US-1040 for 2008 reflecting the approved amendments. The proposed changes (1) increased the
adjusted gross income of $43,539 by $97,046 for the “correct” amount of $140,585; and (2)
reduced the itemized deductions by $5,841. The explanation noted that since the Nevinses never
received a 1099 from Gallagher Bassett Services for “$291,249.00” that amount was never
reported. “From that, 2/3” or “$192,224” 4 was “distributed to the client . . . leaving the increase
as shown,” which then invited the additional federal income tax. An attached clean copy of a 2008
US-1040 showed the adjusted gross income of $140,585 as comprising of $135,282 business
income, and -$12,292 as farm income (plus wages and interest of $48,220). Both the proposed
US-1040X and the clean copy of the 2008 US-1040 were signed only by Mr. Meyer. According
to Mr. Meyer, Ms. Temmel informed him that the new numbers on the proposed US-1040X were
acceptable, and that a written confirmation from the IRS would be delivered within six to eight
weeks.
Mr. Meyer further certified that on September 10, 2010, he mailed another NJ-1040X
(dated August 24, 2010) to Taxation, executed by him and the Nevinses reporting a total revised
GIT liability in the amount of $4,847 as a result of an increase in net profits from business from
$29,806 to $122,990. 5 After including an underpayment penalty of $147, and less credits for net
4
Two-thirds of $291,249 is $194,166.
5
However, unlike the proposed changes to the US-1040 which showed the net profits from
business as $135,282, the NJ-1040X showed an amount of $122,990. Again, varying from the
reportable amount on the US-1040X as to payments from Gallagher Bassett Services, the NJ-
1040X explained that $325,000 was received from Gallagher Bassett Services, and that 2/3 of the
same or $216,667 was “distributed to the client,” and the balance was now being included.
4
tax paid, the balance GIT due was reported as $4,355. The return was mailed using a postage
meter (first-class letter). 6 The Director has no record of receiving a second amended GIT return. 7
On September 11, 2010, Mr. Meyer provided copies of the 1099s the Nevinses received in
2008 along with a copy of the proposed adjustments to the 2008 tax return (“US-1040X” and the
“amended 1040”) to Ms. Temmel in accordance with their “prior agreement.”
On October 26, 2010, the Nevinses received a cover letter and Form 4549 (an examination
report) from the IRS that showed changes to their federal income tax liability. The adjustments to
income were as follows: (1) a deduction of $192,224 for “cost of goods sold” (the amount claimed
by the Nevinses’ to be two-thirds of the amount received from Gallagher Bassett Services, which
was distributed to the client on the Nevinses’ proposed US-1040X); (2) an addition of $291,249
as “gross receipts” (the net business income shown as under-reported in the Workpaper); (3)
adjustments to deductions for tuition and student loan interest; and (4) an “SE” adjusted gross
income adjustment of -$6,278 (the self-employment tax due to adjustments to net earnings from
self-employment). On a separate schedule “SE – Computation of Self-Employment Tax,” the IRS
listed “self-employment income” as $122,990. The adjustments less reported income and taxes
paid resulted in a federal income tax balance due of $27,375 (exclusive of interest and penalty).
The letter advised the Nevinses to respond by November 5, 2010 if they accepted the changes.
On November 9, 2010, the Nevinses faxed Form 4549 to Ms. Temmel indicating that they
had accepted the IRS’ changes. On November 24, 2010, the IRS delivered a letter confirming the
6
The post office’s sales receipt shows a date of September 10, 2010 for a first-class mailing to
“Trenton, NJ 08646,” at a cost of $0.61.
7
Mr. Nevins argues that the Director acknowledged that Taxation destroys the hard copies of tax
returns after two years of filing and uploads them on its system.
5
Nevinses’ acceptance of the Form 4549, and stated that no additional changes would be made for
tax year 2008.
On August 4, 2011, Taxation processed the Federal Tax Information (“FTI”) that it
received from the IRS through an electronic database pertaining to changes made by the IRS to
the Nevinses’ 2008 US-1040. Almost two and half years later, on June 11, 2014, Taxation adjusted
the Nevinses’ net profits from business from $23,965 to $128,831 on their 2008 GIT return based
on the FTI and issued a notice of deficiency for the 2008 GIT in the amount of $6,463.67, including
interest. 8 The notice explained that the changes were engendered by the changes made by the IRS.
These were the same changes shown on the IRS’s October 26, 2 010 Form 4549, which was
accepted by the Nevinses on November 9, 2010.
On September 4, 2014, the Nevinses filed an administrative protest to the Taxation’s
Conference and Appeals Branch (“CAB”). In connection with the protest, and after a request from
the CAB, on September 8, 2014, CAB received a copy of Nevinses’ second 2008 NJ-1040X paper
return dated August 24, 2010. 9
On April 29, 2015, a conference was held to discuss Nevinses’ protests. On June 9, 2015,
the CAB upheld the deficiency and rejected Nevinses’ argument that the assessment was barred
by the statute of limitations on grounds Taxation had no record of receiving either the second
amended NJ-1040X or of the amount reported as due on the allegedly filed NJ-1040X of $4,355.
8
The amount of net GIT was $4,674.20 and interest was $1,789.47. No penalty was assessed.
Note that the tax assessed was less than the self-assessed tax reported on the Nevinses’ second
amended 1040-X allegedly mailed to Taxation on September 10, 2010, which was $4,847, plus
underpayment penalty of $147. However, the net reported as due was lower, $4,355, possibly due
to additional refunds/credits.
9
The Director argues that this is the first time Taxation had received the Nevinses’ second
amended NJ-1040X.
6
During the CAB conference, Mr. Meyer claimed to have instructed the Nevinses to wait for a bill
from Taxation before making any payment because Taxation generally sends a notice of tax due
60 days after a return is filed. The Nevinses acknowledged that they did not pay any GIT for 2008
to Taxation at any time. They argued that they never received a notice, and if received, they would
have paid the 2008 GIT.
Thereafter, on June 17, 2015, the Director issued a final determination that the Nevinses
owed GIT in the amount of $6,867.66. 10 The Nevinses timely appealed to this court on September
13, 2015.
SUMMARY JUDGMENT
Summary judgment is appropriate where there exists no “genuine issue of material fact
requiring disposition at trial.” See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 530 (1995)
(quoting Ledley v. William Penn Life Ins., Co., 138 N.J. 627, 641-42 (1995)). See also R. 4:46-
2. The court must determine whether “the competent evidential materials presented are sufficient
to permit a rational factfinder to resolve the alleged disputed issue in favor of the nonmoving
party.” Brill, 142 N.J. at 523. Here, the only issue is whether Taxation’s deficiency assessment
with regard to the Nevinses’ 2008 GIT is barred by the statute of limitations. The court finds that
there is no genuine issue as to a material fact in the matter; therefore, a decision by summary
judgment is appropriate.
APPLICABLE LAW
The court must consider two basic principles. First, “[i]n construing a statute, [the court]
first consider[s] its plain language.” Kimmelman v. Henkels & McCoy, Inc., 108 N.J. 123, 128
(1987) (citing Renz v. Penn Cent. Corp., 87 N.J. 437, 440 (1981); Sheeran v. Nationwide Mut. Ins.
10
The amount of net GIT is $4,674.20 and interest is $2,193.45.
7
Co., Inc., 80 N.J. 548, 556 (1979)). Second, “[t]he Director’s assessment is entitled to a
presumption of correctness.” Meadowlands Basketball Assocs. v. Dir., Div. of Taxation, 19 N.J.
Tax 85, 90 (Tax 2000), aff’d, 340 N.J. Super. 76 (App. Div. 2001). Therefore, “the Director’s
construction of the operative law, which is not plainly unreasonable and with which the Legislature
has not interfered, is entitled to prevail.” Aetna Burglar & Fire Alarm Co. v. Dir., Div. of Taxation,
16 N.J. Tax 584, 589 (Tax 1997) (citing Metromedia, Inc. v. Dir., Div. of Taxation, 97 N.J. 313,
327 (1984)).
There are four relevant statutes at issue in the instant matter: N.J.S.A. 54A:8-7, which
requires a taxpayer to report any change or correction made to the federally reported income,
N.J.S.A. 54A:9-2, which explains what and when constitutes a notice of deficiency, and its
conversion into an assessment, N.J.S.A. 54A:9-3, which specifies the date of assessment, and
N.J.S.A. 54A:9-4, which provides the general statute of limitations with regard to assessment of
GIT deficiencies and exceptions to the statute of limitations.
A. Reporting Change or Correction in Federal Income to Taxation
A taxpayer is required to report any change or correction in federal taxable income to
Taxation. N.J.S.A. 54A:8-7. A change to federal taxable income can be made by filing an US-
1040X or by a correction made by the IRS or other competent authority. Ibid. A taxpayer is
required to report the change or correction even if he disagrees with the IRS’s decision. Ibid. In
such case, he must state wherein the change or correction is erroneous. Ibid. Such a report or
filing of a NJ-1040X must be done within 90 days “after the final determination” of the IRS
initiated change or correction, or within 90 days after filing the US-1040X. Ibid. 11
11
An almost identical requirement is imposed upon corporate taxpayers under the Corporation
Business (“CBT”) Act. See N.J.S.A. 54:10A-13 (where income reported federally is changed or
corrected by the IRS, then the taxpayer must report that changed or corrected “taxable income” to
8
B. Issuing a Notice of Deficiency
After determining that there is a deficiency of GIT, the Director may mail a notice of
deficiency to the taxpayer. N.J.S.A. 54A:9-2(a). Usually, once 90 days has passed from the
mailing date, the deficiency of the GIT, plus interest and penalties, becomes an “assessment,”
unless the taxpayer has protested the notice of deficiency. N.J.S.A. 54A:9-2(b). A “deficiency”
is the GIT due less “the amount shown as the tax upon the taxpayer’s return (whether the return
was made or the tax computed by him or by the director),” less amounts “previously assessed (or
collected without assessment) as a deficiency . . . plus . . . rebates.” N.J.S.A. 54A:9-2(g).
C. Issuing a Notice of Additional Tax Due
If the taxpayer fails to comply with section 54A:8-7, the rule in 54A:9-2(b) does not apply,
and “the [D]irector may assess a deficiency based upon such changed or corrected Federal taxable
income by mailing . . . a notice of additional tax due . . . and such deficiency, together with the
interest . . . and penalties . . . shall be deemed assessed on the date such notice is mailed . . . .”
N.J.S.A. 54A:9-2(e)(1). However, if within 30 days of the mailing, the taxpayer files a report of
the federal change or an amended NJ-1040 as required by N.J.S.A. 54A:8-7, which report or
amended return is “accompanied by a statement” that the federal determination “and notice of
additional tax due are erroneous,” then the date of mailing by Taxation will not be deemed to be
the date when the additional tax is assessed. N.J.S.A. 54A:9-2(e)(1).
Taxation within 90 days “after the final determination of such change or correction” and further
“concede the accuracy of such determination or state wherein it is erroneous.” Similarly, one who
files an amended federal corporate income tax return must file an amended New Jersey CBT return,
within 90 days after filing the former).
9
Note that this notice of additional tax due sent by Taxation when a taxpayer fails to report
federal changes or fails to file an amended return due to federal changes, is not deemed to be a
“notice of deficiency” for purposes of N.J.S.A. 54A:9-2. See N.J.S.A. 54A:9-2(e).
D. Assessment Date for Self-Assessed Taxes
“The amount of tax which a return shows to be due . . . shall be deemed to be assessed on
the date of filing of the return (including any amended return showing an increase of tax).” N.J.S.A.
54A:9-3(a). Also, if a taxpayer chooses to file an amended return or report according to N.J.S.A.
54A:8-7 and “concedes the accuracy of a Federal change or correction,” then “any deficiency . . .
is deemed to be assessed on the date” that amended return was filed. Ibid. Such assessment will
be timely even if it would be considered as untimely under the general limitations period under
N.J.S.A. 54A:9-4(a). Ibid. However, the date of the deemed assessment is the mailing date if a
“notice of additional tax due” was sent under N.J.S.A. 54A:9-2(e). Ibid.
E. General Statute of Limitations for Assessment of GIT
Generally, any GIT “shall be assessed within 3 years after the return was filed (whether or
not such return was filed on or after the date prescribed).” N.J.S.A. 54A:9-4(a). However, if a
taxpayer fails to comply with N.J.S.A. 54A:8-7, in that he or she does not report a federal change
or correction in federal income, or fails to file an amended NJ-1040, the statute of limitations for
GIT assessment does not apply. N.J.S.A. 54A:9-4(c)(1)(C). See also N.J.A.C. 18:2-2.6(c)(1)
(Taxation can assess “additional” GIT “within three years after the return was filed,” except that
such an assessment may be made “at any time if . . . the taxpayer fails to comply with N.J.S.A.
54A:8-7”).
If a taxpayer does comply with the reporting requirement of N.J.S.A. 54A:8-7, then the
additional GIT as a result of the federal change or correction is deemed assessed on the date the
10
return is filed. N.J.S.A. 54A:9-4(c)(3). If not so deemed, then, the Director can impose a GIT
assessment “at any time within 2 years after such report or amended return was filed.” Ibid. 12
ANALYSIS
A. Self-Assessing Nature of GIT Return
The Nevinses’ statute of limitations argument is plainly without merit. Even if the court
were to accept that they filed their second NJ-1040X dated August 24, 2010, on September 10,
2010, the date it was allegedly mailed, considering the plain and unambiguous language of
N.J.S.A. 54A:9-3(a), the court concludes that their 2008 GIT obligation was assessed against them
on September 10, 2010 which is the date that their return was filed. 13 In other words, the general
three-year statute of limitations period is not implicated. Also, the inapplicability of the three-year
limitations period is particularly relevant because the Nevinses conceded the correction by the IRS.
See ibid. (“If an amended return or report filed pursuant to section 54A:8-7 concedes the accuracy
of a Federal change or correction, any [GIT] deficiency . . . resulting therefrom shall be deemed to
be assessed on the date of filing such. . . amended return, and such assessment shall be timely
notwithstanding section 54A:9-4”). Accordingly, the Nevinses must have paid the tax due on their
second NJ-1040X, which indicated that they owed $4,355 in GIT (which included a voluntarily
assessed underpayment penalty of $147) to Taxation before the due date of the return under
N.J.S.A. 54A:8-1(a) (requires GIT to be paid annually “on a return which shall be filed . . . on or
12
Note that unlike the GIT Act, the CBT Act provides four years “to make deficiency [CBT]
assessments” which begins to run “from the date that taxable income is finally changed or
corrected by the” IRS. N.J.S.A. 54:10A-13.
13
A return is filed when it is mailed. See N.J.S.A. 54:49-3.1(c ) (“the date the return is
transmitted” to Taxation “shall be deemed the date of filing”); N.J.A.C. 18:2-4.3(a) (“the date of
the United States postmark as stamped on the envelope . . . will be deemed to be the date of filing”).
11
before April 15” of the year following a calendar year “and the full amount of the tax shall be due
and payable on or before the” due date of the return). 14
B. Notice of Deficiency
A notice of deficiency under N.J.S.A. 54A:9-2(a) is not required to be issued for self-
assessed taxes. The plain language of the statute clearly states that the Director may mail a notice
of deficiency to the taxpayer if the Director determines that there is a deficiency of income tax.
Therefore, considering the plain and unambiguous language of the statute, the Director is not
required to issue a notice of deficiency to let taxpayers know the amount of tax on their GIT
returns. If a taxpayer is already aware of his tax obligation when he prepares and files a return, he
must pay such amount of tax to Taxation. However, the statute applies to GIT due in addition to
what the taxpayer reports as self-assessed. See also N.J.A.C. 18:2-5.5(a)(2) (defining an
“additional assessment” as an assessment of either “additional tax” under the State Tax Uniform
Procedure Law, N.J.S.A. 54:49-6, or a “[d]eficiency assessment,” where after a return is filed, “the
Director determines that there is a deficiency with respect to the payment of tax due because the
amount of tax shown due on the report or return is less than the amount of tax due after adjustment
of the amount due upon examination or audit of the return . . . ,” but “does not include an
assessment issued because the amount of tax actually paid is less than the amount due as shown
14
A taxpayer cannot appeal the self-assessed tax liability on his return. See N.J. Div. of Taxation
Office of Counsel Serv. Conference and Appeals Branch, CAB-300 Protest and Conference
Guidebook 3 (2017) (if Taxation “issues a notice without including information about appeal
rights, it usually means that the notice cannot be protested. This includes notices” sent by Taxation
“when [a taxpayer] file[s] a return but . . . [does] . . . not pay the entire amount that [taxpayer] . . .
reported as due. In such a case, the assessment has been self-assessed so [taxpayer] . . . cannot
protest the resulting notice for nonpayment.”); see also N.J. Div. of Taxation, NJ-601-I, Taxpayer’s
Bill of Rights (2006) (Taxation “will not accept a protest (appeal) of a self-assessed liability
(liability you indicated on the tax return you filed) or a bill that results from a math error you
made.”).
12
on the taxpayer’s return or report.”). 15 If the Director determines to increase a taxpayer’s GIT
obligation beyond the amount the taxpayer reported to be due on his original return, the Director
is required to issue a notice of deficiency, because the taxpayer is not aware of any additional tax
that the Director has assessed.
The Taxpayers’ Bill of Rights, L. 1992, c. 175 (“Taxpayers’ Bill of Rights”) does ensure
that “all taxpayers are accorded the basic rights of fair and equitable treatment under the law; and
all taxpayers receive the information and assistance they need to understand and meet their State
tax responsibilities.” N.J. Div. of Taxation, Pub. ANJ-1, New Jersey Taxpayers’ Bill of Rights 1
(2018). The Taxpayer’s Bill of Rights guarantees (1) the right to obtain information from
Taxation; (2) the right to appeal with regard to a determination made by the Director; and (3) all
notices contain clear purpose of the communication, a guidance to respond to the notice, and a
statement of taxpayers’ rights. The Taxpayer’s Bill of Rights, however, does not place an
obligation upon Taxation to issue a notice to remind a taxpayer that taxes shown as owed on a filed
return (original or amended) needs to be remitted.
The court finds similarities in the purpose, effect, and operation of a federal notice of
income tax deficiency. According to I.R.M. 4.8.9.2(1) (Aug. 11, 2016), a notice of deficiency “is
a legal notice in which the Commissioner determines the taxpayer's tax deficiency” (emphasis
added). Furthermore, “IRC 6212 and IRC 6213 require that the [IRS] issue a notice of deficiency
before assessing additional income tax . . . .” Ibid. “The purpose of a notice of deficiency is . . .
15 N.J.S.A. 54:49-6 permits assessment of “additional tax” under the same circumstances for the
issuance of a GIT deficiency under N.J.S.A. 54A:9-2(a) in that where after a return is filed, the
Director “shall cause the same to be examined and may make such further audit or investigation
as he may deem necessary, and if therefrom he shall determine that there is a deficiency with
respect to the payment of any tax due under such law, he shall assess the additional taxes, penalties,
if any, pursuant to any State tax law.” N.J.S.A. 54:49-6.
13
[t]o comply with IRC 6213 . . . [t]o ensure the taxpayer is formally notified of the IRS's intention
to assess a tax deficiency . . . [and t]o inform the taxpayer of the opportunity and right to petition
the Tax Court to dispute the proposed adjustments.” I.R.M. 4.8.9.2(2).
Therefore, the court concludes that a notice of deficiency under N.J.S.A. 54A:9-2(a) is
required (1) when Taxation determines the taxpayer’s tax deficiency that taxpayer does not agree;
or (2) when Taxation assesses additional income tax. By issuing such notice, taxpayers would be
aware of any potential additional tax and may appropriately protest any dispute to Taxation.
Here, the Nevinses clearly acknowledged that they were aware of their tax liability on the
NJ-1040X when they allegedly filed the same with Taxation; they elected not to submit any
payment. In the court’s view, the Nevinses acted to their detriment by waiting for a notice from
Taxation before remitting any payment.
Furthermore, as noted above, there was no additional tax assessed by the Director, nor
additional income included, other than the attorney fee income that should have been undisputedly
reported, and which was so reported on the amended US-1040X and the allegedly filed second NJ-
1040X. Indeed, according to the allegedly filed second NJ-1040X, the GIT should have been more
because the Nevinses’ reported the income from Gallagher Bassett Services as $108,333 ($325,000
less two-thirds paid to the client), whereas for the US-1040X, it was reported as $99,025 ($291,249
less $192,224 paid to the client). Again, the second NJ-1040X showed $122,990 as net profits
from business whereas the proposed US-1040X showed $135,282. While a portion of the
difference of $12,292 may be due to the $10,000 property tax deduction machinations, it still shows
that the Director did not impose any additional GIT.
14
C. A Determination by the IRS must be Final and Supported by Evidence
The Nevinses contend that Mr. Meyer received an approval from Ms. Temmel with regard
to the figures in the Nevinses’ proposed US-1040X and therefore allegedly filed a NJ-1040X as
soon as possible. 16 The inquiry is whether the “final determination” of the IRS was made prior to
the allegedly filing of the second NJ-1040X on September 10, 2010 and whether the second NJ-
1040X could be considered as a report of the federal change or correction by the IRS.
In H.B. Acquisitions, Inc. v. Dir., Div. of Taxation, 12 N.J. Tax 60 (Tax 1991), the taxpayer
and the IRS had a conference with regard to the taxpayer’s corporate income tax return and the
taxpayer agreed to file an amended return with the IRS. Several months after the conference, the
taxpayer filed an amended return with the IRS and sought refunds from Taxation based on the
amended return filed with the IRS. The taxpayer argued that the federal amended return was the
result of a federal audit. In denying the taxpayer’s argument, the court emphasized that a self-
assessed return is not a change or correction by the IRS because it is because it is subject to
redetermination by the respective taxing authorities. The court explained that “self-assessment
and redetermination by the taxing authority are two distinct methods of arriving at a tax liability
and are treated as such.” Id. at 67 (citing Vicoa, Inc. v. Dir., Div. of Taxation, 166 N.J. Super. 496
(App.Div.1979); Olin Mathieson Chemical Corp. v. Kingsley, 119 N.J. Super. 102
(App.Div.1972)). The court further remarked that:
“[An] amended return in the context of an audit at the request of the
IRS does not change the self-assessing character of that filing.
There is no proof that the figures in the second amended federal
return were figures changed or corrected by the IRS. The only
evidence offered by taxpayer on this issue is a letter prepared by the
taxpayer indicating a request by the IRS for the amended return to
assist in the audit.”
16
There is no actual proof that Ms. Temmel approved the figures in the Nevinses’ proposed US-
1040X, only the claim made by Mr. Meyer.
15
[Id. at 67-68.]
Similarly, in Lenox, Inc. v. Dir., Div. of Taxation, 19 N.J. Tax 437 (Tax 2001), the taxpayer
received an examination report from the IRS, which recommended a change in the filed federal
corporate income return, on July 27, 1990. On July 31, 1990, the taxpayer consented to the same.
After that, the taxpayer received a letter from the IRS dated October 31, 1990, advising “the
acceptance of” the taxpayer’s “federal income tax returns . . . with the changes noted in the”
examination report of July 27, 1990. The parties and the court agreed that the date of the “final
determination” of the change in the taxpayer’s income was October 26, 1990. Id. at 448 (citing
Sharps, Pixley, Inc. v. Dir., Div. of Taxation, 16 N.J. Tax 626, 636-39 (Tax 1997) (which had
concluded that the date of the IRS’s letter confirming the acceptance of a revenue agent’s report
was the date of the IRS’s final determination for purposes of N.J.S.A. 54:10A-13)).
Applying the analyses in H.B. Acquisitions, Inc. and Lenox, Inc., to the facts in the present
matter, this court finds that the “final determination” of the IRS was not made until November 24,
2010 when the Nevinses received a confirmation letter from the IRS, indicating that the IRS
accepted the Nevinses’ “cost of goods” adjustment of $192,144 and that the Nevinses’ accepted
the IRS proposed increase to business income in an amount of $291,249. The alleged discussion
between Mr. Meyer and Ms. Temmel was merely a part of the examination process. The alleged
approval from Ms. Temmel, instigating the proposed US-1040X, was not the IRS’s official and
final determination. The figures were still subject to redetermination by the IRS until the official
letter was issued on November 24, 2010. The IRS could have discovered an error in the amended
return, and could have made additional changes to the taxable income until the issuance of the
confirmation letter. Accordingly, the court concludes that the Nevinses did not appropriately
report the “final determination” of the IRS to Taxation under N.J.S.A. 54A:8-7. As a result, the
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Director had an authority to assess the Nevinses’ 2008 GIT at any time under N.J.S.A. 54A:9-
4(c)(1)(C).
Additionally, Mr. Meyer did not include a statement showing the federal determination in
the Nevinses’ amended return as required by N.J.S.A. 54A:9-3(a). Assuming, arguendo, that the
Nevinses mailed the second NJ-1040X on September 10, 2010, Taxation still would not have
known then whether the amended return was also a report of a federal change without having a
statement showing the federal determination. Therefore, even if Taxation had received the second
NJ-1040X from the Nevinses, it would have assessed additional tax liability based on the FTI from
the IRS and not the amended return.
D. Interest
The Nevinses contend that they would have not incurred any interest if they have received
a notice or a bill from Taxation earlier after they allegedly filed their second NJ-1040X in
September of 2010. To determine the appropriateness of interest, the court divided this matter into
two periods and analyzed each. The first period is from April 15, 2009, the date an original GIT
return was due, see N.J.S.A. 54A:8-1(a), to June 17, 2015, the date that the final determination
was issued to the Nevinses. Considering that the Director’s assessment was appropriate until the
date of the final determination for the aforementioned reasons, and further considering the clear
and ordinary meaning of N.J.S.A. 54:49-3, accrual of interest from the date the tax was originally
due, April 15, 2009, is appropriate. That statute clearly states that “any taxpayer who shall fail to
pay any State tax . . . shall pay in addition to the tax, . . . interest . . . from the date the tax was
originally due until the date of actual payment.” Ibid. (emphasis added); see N.J.S.A. 54:9-5(a)
(“If any amount of income tax is not paid on or before the last date prescribed in this act for
payment, interest on such amount at the rate as is required . . .”); N.J.S.A. 18:2-2.4(a) (failure to
17
pay tax “within the time prescribed” by the taxing statute will invite interest “on the unpaid tax”).
Since the Nevinses’ 2008 GIT could have been assessed at any time, any interest relates to 2008
GIT could have been assessed at any time. See N.J.S.A. 54:9-5(j) (“Interest prescribed under this
section may be assessed and collected at any time during the period within which the tax or other
amount to which such interest relates may be assessed and collected, respectively”) (emphasis
added).
The second period is from June 17, 2015 to present. The final determination letter clearly
states that “interest continues to accrue at the statutory rate as long as any balance remains unpaid.”
The Nevinses could have paid the GIT demanded and avoided the additional accrual of interest at
any point from June 17, 2015. Interest continues to accrue until all outstanding amounts are paid,
and until the court decides the matter. If a taxpayer pays the final determination amount, and the
assessment is voided, the taxpayer is entitled to a refund with interest. See N.J.S.A. 54:49-15.1.
Accordingly, a taxpayer who chooses not to pay, but takes a wait-and-see approach pending the
court’s decision, can face increased, but avoidable, interest payments.
CONCLUSION
For all of the foregoing reasons, the court finds that the Director’s final determination is
valid under N.J.S.A. 54A:9-3(a) and 54A:9-4(c)(1)(C). Accordingly, the Nevinses’ motion to
annul the Director’s final determination is denied. Conversely, the Director’s cross-motions for
summary judgment is granted, and the final determination by the Director is, therefore, affirmed.
The Nevinses must pay the GIT amount demanded in the Director’s final determination, including
interest. In reaching these conclusion the court is satisfied that:
(1) The general three-year statute of limitations under N.J.S.A. 54A:9-4(a) does not apply
to a self-assessed tax.
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(2) The Director was not required to provide a notice to the Nevinses for the GIT reported
by them as due on their second NJ-1040X alleged to have been filed on September 10, 2010.
(3) The Nevinses did not appropriately reported the changes made by the IRS to Taxation
according to N.J.S.A. 54A:8-7. As a result, the Director had the authority to assess the Nevinses
with GIT for 2008 at any time under N.J.S.A. 54A:9-4(c)(1)(C) for failure to comply with section
54A:8-7.
(4) Interest accrues from the date the tax was originally due, April 15, 2009.
The parties shall submit computations pursuant to - 8:9-3 within 30 days, showing the
R.
assessment amount and interest computed in accordance with this opinion and through the date
hereof. The court’s order and final judgment consistent with this opinion will thereafter be
uploaded on eCourts.
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