State of NJ Options for Back Taxes
The State of New Jersey, Department of the Treasury, Division of Taxation (the “Division”) is responsible for all facets of the state’s tax administration.
It manages everything from assessment to tax collection. With that said, the Division has chosen to contract with a private company to assist with collecting delinquent taxes. Currently, the Division employs Pioneer Credit Recovery for this task. Once a taxpayer’s case is with Pioneer they must deal with them directly to reach a tax resolution.
Once the Division generates an assessment for taxes owed to the State of New Jersey, it will review the taxes owed and assign a caseworker to the account. The caseworker will then mail an initial contact letter which includes a schedule detailing the amounts owed. If a taxpayer does not respond to the initial contact letter, the caseworker will attempt to contact the taxpayer via telephone. If the taxes owed still has not been resolved, the Division will issue a Certificate of Liability (“COD”) with the Clerk of the New Jersey Superior Court.
For practical purposes, a COD is the New Jersey equivalent of a tax lien. If the Division issues a COD, the state will also begin to assess a Cost of Collection Fee. The collection fee becomes part of the liability owed. Further, the State of New Jersey adds penalties and interest to taxes owed. Moreover, it may add a Referral Cost Recovery Fee of 10.7% for cases sent to Pioneer Credit Recovery.
NJ State Individual Tax Options
Taxpayers who owe back taxes to the State of New Jersey have three main options available to reach a tax resolution. These are:
- Installment Agreement (Payment Plan),
- Closing Agreement, and
- Penalty Abatement
An Installment Agreement is also known as a Payment Plan. It is a payment arrangement where the taxpayer makes a series of monthly payments to the Division until the taxpayer satisfies the past due tax liability. A Closing Agreement is a program similar to what the Federal Government and other states call an Offer in Compromise. Here, the taxpayer may offer to settle their delinquent tax liability for less than what the taxpayer owes. Finally, a request for Penalty Abatement is a written request asking for relief with tax penalties. In other words, the taxpayer asks the Division to waive some, or all, of the tax penalties it has assessed.
Statute of Limitations
Arguably, the first thing a taxpayer must consider before pursuing a resolution is to determine the taxpayer’s legal rights under New Jersey law concerning the statute of limitation rules for the collection of back taxes.
In New Jersey, the Division has six years from the date of the first assessment to file a COD with the New Jersey Superior Court against the taxpayer for the delinquent tax due. Additionally, the State Attorney General may bring an action against the taxpayer in New Jersey Superior Court for the recovery of taxes owed that has been assessed in the six years before the commencement date of the action. Finally, New Jersey law only requires that the COD be renewed by the Division every 20 years. Moreover, it also provides for no limitation on how long the Division may keep the COD issued. The only method for having a COD released by the Division is to satisfy the taxes fully.
The Federal Government and most states have innocent or injured spouse programs. These programs provide tax relief for these taxpayers who otherwise are not responsible for their spouse’s taxes iwed. Unfortunately, the state of New Jersey is one state that does not provide this program. Taxpayers who believe they are not liable for taxes based on innocent spouse principles must timely challenge the assessment. Otherwise, they can make their case through the Closing Agreement Request process.
Alternative Options That May Be Available
Contest the Assessment
If the taxpayer has a proposed assessment for additional income tax due as a result of a State of New Jersey audit, they have the opportunity to appeal the proposed assessment. The taxpayer has three appeal options:
(1) protest and request an informal administrative conference with the Conference and Appeals Branch,
(2) file an appeal with the required fee to the Tax Court, or
(3) a taxpayer who paid the entire assessment within the one-year appeal period may file a refund claim after that.
The taxpayer may not resolve their tax situation with the Conference and Appeals Branch. If so, the taxpayer may appeal to the Tax Court. The Conference and Appeals Branch is an informal body, while the New Jersey Tax Court is an administrative, judicial body. While a taxpayer may represent oneself in New Jersey Tax Court, it is advised to hire a licensed attorney who has experience practicing in the Tax Court.
Bankruptcy can be expensive. Therefore, this option is generally feasible for taxpayers who have personal liabilities in addition to their unpaid tax liabilities. Some taxpayers can discharge state taxes owed through bankruptcy proceedings. Taxpayers should contact an experienced bankruptcy attorney if they want to pursue this option.
The New Jersey Tax Amnesty Program
The State of New Jersey has conducted numerous tax amnesty programs. Currently, there are no active programs. The state did run a program in the past that ended January 15, 2019. This program was available for individuals and businesses with taxes owed. The Amnesty Program encourages delinquent taxpayers to become current. The state will waive penalties, and cut interest for those who file and fully pay their taxes owed. It is a program that most delinquent taxpayers should pursue.
As discussed herein, New Jersey law does not provide taxpayers with the right to appeal determinations of the Division concerning the collection of taxes owed. However, there are a couple of practical tips that the taxpayer, or their representative, should follow.
First, do not be afraid to escalate contentious issues to a manager within the Division. Often, a fresh set of eyes and the authority and experience of a supervisor can help resolve the matter amicably.
Second, if you believe that your case manager is not following New Jersey law, or discriminating against you, file a request for assistance with the Office of the Taxpayer Advocate (OTA). OTA helps taxpayers end their tax problems by:
- Helping taxpayers who are experiencing “undue hardship” as a result of Division actions;
- Working with taxpayers whose problems fall within the Division’s jurisdiction; and
- “Identifying systemic challenges within the Division that increase the burden on, or create certain issues for taxpayers. When appropriate, OTA will recommend administrative or legislative solutions.”
You can find more information about this on the Office of the Taxpayer Advocate website.
Certificate of Liability (COD)/Lien Releases
The Division will only release a COD in different situations. First, if the taxes owed, including any penalties, interest, and collection fees, has been paid in full. Second, it may release a COD if the taxes owed is satisfied through a Closing Agreement or Penalty Abatement.
Taxpayers have many tools at their disposal when dealing with back taxes in the State of New Jersey. With that said, New Jersey has a statute of limitations to hold open filed CODs. Additionally, the penalty, interest, and collection fees system results in reasonable taxes owed ballooning into crippling liabilities. Therefore, taxpayers should consult with a qualified tax professional as soon as these problems arise to determine which course of action is most appropriate for their situation. You can also find the top-rated professionals by license type below.
Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.