August 21, 2020
The August 3, 2020 issue of the New Jersey Law Journal (Vol 226, No. 31) features commentary by tax partner, Robert S. Schwartz, to reporter, Charles Toutant, concerning the recent 3rd Circuit Court of Appeals decision which, in reversing the United States Tax Court, held that $55.7MM of New Jersey Business Employment Incentive Program (“BEIP”) grants made to one Brokertec Holdings, Inc, were non-taxable, non-shareholder contributions to corporate capital rather than corporate gross taxable income. See, State Grant to Relocating Employer Taxable Income, 3rd Circuit Rules (pg. 1). Mr. Schwartz put the courts’ conflicting decisions in perspective for Mr. Toutant because he was familiar with the federal case law concerning the taxability of non-shareholder contributions to corporate capital. The factual and tax considerations now in play are in part governed by Internal Revenue Section 118 and in part by case law predating its enactment. Case law began in the 1920s involving the taxability of government grants to incorporated utilities and railroads. Among other points, Mr. Schwartz noted that the 3rd Circuit’s ruling should cause other corporate recipients of New Jersey BEIP grants to revisit their corporate income tax returns if still open to audit for grant years, in order to determine, for example, whether their situation might be distinguishable from the salient facts identified by the 3rd Circuit panel or consider filing amended returns rather than waiting out an IRS audit beginning with grant information the IRS subpoenas from the New Jersey Economic Development Authority. Those corporations under continuous IRS audit face essentially the same considerations. If your corporation faces these considerations, don’t hesitate to contact Robert S. Schwartz, Esq., at 908-647-1022, Ext. 112, or contact him at [email protected].