New Jersey Sourcing of Gain from Deemed Sale of S Corporation’s Assets Affirmed

The New Jersey Superior Court affirmed a Tax Court decision holding that the correct method of sourcing income on the deemed sale of a New Jersey S corporations’s assets was with reference to the Corporation Business Tax (CBT) statutes.

Nonoperational Income Assigned to State of Domicile

The Tax Court held that gains from an IRC Sec. 338(h)(10) deemed sale are nonoperational income assignable to the domiciliary state of the corporation. (TAXDAY 2017/04/14, S.9) Because the income had to be allocated to New Jersey as the S corporation’s (taxpayer’s) state of domicile, the assessment of gross (personal) income tax on the non-resident shareholders was properly affirmed.

Standard of Review

While the Tax Court may have overstated the deference that should be afforded to the Division of Taxation in the matter, there was “no instance where the judge failed to fully and fairly review the record before properly making her own independent determinations on the questions of law involved.”

Paz v. Director, Division of Taxation, New Jersey Superior Court, Appellate Division, No. A-4452-16T4, January 31, 2019, ¶402-253

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All stories by: CCHTaxGroup