The New Jersey Tax Court has held that individual taxpayers were not required to include in their New Jersey gross income the undistributed earnings of controlled foreign corporations (“CFCs”) for purposes of the Gross Income Tax, even though those amounts were included in their federal income under IRC § 965. Amin v. Director, Div of Tax., N.J. Tax Court, Docket No. 007430-2022 (December 31, 2024). The Division of Taxation (the “Division”) had included such amounts in the individuals’ income on the grounds that they were “deemed dividends,” and that dividends are one of the enumerated categories of income on which individuals are subject to the Gross Income Tax. The Tax Court rejected the Division’s argument, finding that under the plain language of the New Jersey Gross Income Tax statute there must be an actual “distribution in cash or property” in order for there to be a dividend, and that in this case, there was no such distribution. Therefore, the Tax Court “agree[d] with plaintiffs that Section 965 income, which they were required to report on their US-1040 as Subpart F income under the [2017 Tax Cut and Jobs Act], is not includible as dividends under the plain meaning of N.J.S.A. § 54A:5-1(f).” Accordingly, the court granted the plaintiffs’ motion for summary judgment and reversed the Division’s assessment of more than $2 million against the plaintiffs. The plaintiffs were represented by Blank Rome LLP.
For additional information about this ruling, contact Irwin M. Slomka, Kara M. Kraman, or another member of Blank Rome’s State + Local Tax group.
