N.J. Admin. Code § 18:2-2.9

Current through Register Vol. 56, No. 24, December 18, 2024

Section 18:2-2.9 - Part of assessment due to civil fraud; addition to tax

(a) If the Division determines that any part of an assessment is due to civil fraud, the Division shall add a penalty to the tax in an amount equal to 50 percent of the assessment, pursuant to N.J.S.A. 54:49-9.1. This amount shall be in lieu of the late filing and/or late payment penalties imposed by N.J.S.A. 54:49-4 and the penalty imposed under N.J.S.A. 54:49-9 for failure to timely pay an estimated or arbitrary assessment imposed pursuant to N.J.S.A. 54:49-5 or 54:49-7.

1. For the purposes of (a) above, the 50 percent penalty is assessed against the entire tax assessment.

2. For example, the Division makes an assessment of $ 1,000 of tax consisting of $ 750.00 of tax arising from additional interest income and $ 250.00 of tax arising from an overstated deduction. The Division determines that the assessment for the business deduction was due to civil fraud. The portion of the assessment that relates to tax only is $ 250.00, so the Division adds to the tax a civil fraud penalty of 50 percent of that amount, or $ 125.00, plus applicable interest.

(b) In general, civil fraud is characterized by a taxpayers intent to evade or avoid the payment of taxes known to be due to the State by conduct intended to conceal, mislead, or otherwise prevent the administration and collection of the taxes imposed by the laws of this State.

(c) If a taxpayer files a false or fraudulent tax return with the intent to evade tax or fails to file a tax return, the Division of Taxation may make an assessment of tax at any time, pursuant to N.J.S.A. 54:49-6.b.

(d) The Division of Taxation may impose the penalty provided for in (a) above where there is clear and convincing evidence of the taxpayers intent to commit fraud as required by (b) above. Intent is distinguished from inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness.

(e) When making a determination as to whether any part of an assessment is due to civil fraud, the Division of Taxation may consider indicia of fraud that may include, but are not limited to:

1. A pattern of substantially understating income (or sales, in the case of sales tax);

2. A history of failing to maintain adequate books and records;

3. Implausible or inconsistent explanations of behavior;

4. Concealing or transferring assets;

5. Repeated or continuing failure to cooperate meaningfully and fully with the Division of Taxation;

6. Collecting and/or withholding any trust fund tax and failing to remit the tax funds collected to the Division of Taxation;

7. A pattern of failing to file tax returns, remit taxes, or report income or sales;

8. Destruction of records;

9. Making misrepresentations of material facts;

10. Accounting irregularities (two sets of books, false entries on documents);

11. Taking fictitious or improper deductions (for example, overstatement of deductions, personal items deducted as business expenses);

12. Engaging in illegal activities; and/or

13. Maintaining or presenting false or altered documents.

(f) Depending on the facts and circumstances of a matter, a finding of the existence of one or more indicia of civil fraud listed in (e) above, or other indicia not listed therein, may be sufficient to establish that any part of an assessment is due to civil fraud for the purposes of assessing the penalty provided for in (a) above.

(g) Whenever the Division of Taxation assesses the penalty provided for in (a) above, the Division shall advise the taxpayer in writing as to the reasons for the finding of civil fraud.

(h) When the Division of Taxation determines that any part of an assessment is due to civil fraud, such determination is a finding of the Director and the provisions of N.J.S.A. 54:49-18 will apply.

N.J. Admin. Code § 18:2-2.9

Adopted by 46 N.J.R. 1974(c), effective 9/15/2014.