Bill Text: NJ S1139 | 2014-2015 | Regular Session | Introduced
Bill Title: Allows New Jersey gross income taxpayers to elect to deduct certain losses from certain investment arrangements discovered to be criminally fraudulent.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2014-01-30 - Introduced in the Senate, Referred to Senate Budget and Appropriations Committee [S1139 Detail]
Download: New_Jersey-2014-S1139-Introduced.html
Sponsored by:
Senator RICHARD J. CODEY
District 27 (Essex and Morris)
SYNOPSIS
Allows New Jersey gross income taxpayers to elect to deduct certain losses from certain investment arrangements discovered to be criminally fraudulent.
CURRENT VERSION OF TEXT
As introduced.
An Act concerning the New Jersey gross income tax treatment of certain losses from certain investment arrangements discovered to be criminally fraudulent, supplementing chapter 3 of Title 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. A taxpayer who sustains a qualified loss in calendar year 2008, 2009, or 2010 and who, in accordance with the terms and conditions set forth under Internal Revenue Service Revenue Ruling 2009-9, Internal Revenue Bulletin No. 2009-14 (I.R.B. 2009-14, p.735, April 6, 2009), and substantiated under Internal Revenue Service Revenue Procedure 2009-20, Internal Revenue Bulletin No. 2009-14 (I.R.B. 2009-14, p.749, April 6, 2009), is allowed a theft loss deduction for federal income tax purposes as a result of that loss may elect to claim a deduction from the taxpayer's gross income, in the form and manner as shall be provided by the director, for each of the three taxable years prior to the year the qualified loss is discovered (the "discovery year"). The amount of the deduction shall be equal to the amount allowed pursuant to Internal Revenue Service Revenue Procedure 2009-20, 2009-14 I.R.B. 749 (April 6, 2009), against any income directly attributable to the specified fraudulent arrangement that is the source from which the theft loss deduction directly arises, less any income withdrawn, reimbursed, or otherwise received as cash, or as a cash equivalent, from the source of that loss during those taxable years.
b. Notwithstanding the limitations on amended returns pursuant to N.J.S.54A:9-8 or any other law, rule, or regulation to the contrary, a taxpayer may elect to file an amended return to claim a deduction allowed in accordance with subsection a. of this section in each of the three taxable years prior to the year the qualified loss is discovered (the "discovery year").
c. A taxpayer who elects to file an amended return to claim a deduction allowed in accordance with subsection a. of this section shall file an amended return on or after the first day of the sixth month but before the last day of the seventh year following the last day of the calendar year in which the qualified loss is discovered (the "discovery year"). An amended return filed to claim a deduction in accordance with subsection a. of this section which results in an overpayment for purposes of N.J.S.54A:9-7 shall be subject to subsection f. of that section and the provisions of N.J.A.C.18:35-9.2.
d. For purposes of this section, "discovery year," "qualified loss," and "specified fraudulent arrangement" shall have the same meaning as those terms are defined for federal income tax purposes under Internal Revenue Service Revenue Procedure 2009-20, 2009-14 I.R.B. 749 (April 6, 2009).
2. This act shall take effect immediately.
STATEMENT
This bill provides relief for New Jersey gross income taxpayers who suffer monetary losses as a result of certain investment arrangements that are discovered to be criminally fraudulent.
Under the bill, a taxpayer who sustains a qualified loss as a result of an investment in an investment scheme that is discovered to be criminally fraudulent and who is eligible to claim that loss as a theft loss deduction for federal income tax purposes may elect to deduct from the taxpayer's New Jersey gross income certain investment income reported by the taxpayer in prior taxable years. Specifically, the bill permits taxpayers to deduct interest and dividends, capital gains or any other category of income that is reported as gross income and directly attributable to the fraudulent arrangement determined to be the source of the theft loss deduction.
The provisions of the bill stipulate that the deduction is limited to qualified losses sustained in calendar year 2008, 2009, or 2010, and may only be applied against investment income reported in each of the three taxable years prior to the year the qualified loss is discovered. The amount of the deduction excludes any income withdrawn, reimbursed, or otherwise received as cash, or as a cash equivalent, from the investment prior to discovery.
The bill grants taxpayers a 6 1/2 year window of opportunity to file amended returns to claim the deduction. Eligible taxpayers who elect to amend prior tax returns must file amended returns with the Director of the Division of Taxation in the Department of the Treasury on or after the first day of the sixth month but before the last day of the seventh year following the last day of the calendar year in which the loss is discovered. Amended returns filed between those dates may be eligible for interest on the amount of overpayment determined to be due.
Under current law, New Jersey gross income taxpayers who sustain a loss as a result of a fraudulent investment arrangement may elect to deduct their loss as a theft loss during the year the loss is discovered. The deduction may, however, only be applied against the category of "net gains" or income from the disposition of property, and may not be carried back or forward and applied against past or future tax liabilities. Additionally, investment income reported from the fraudulent investment arrangement in prior taxable years is considered constructively received. Taxpayers are prohibited from amending prior tax returns to deduct constructively received investment income.
