New Jersey Issues Guidance on Adoption of Federal Partnership Audit Regime


On April 5, 2024, the New Jersey Division of Taxation issued guidance discussing New Jersey’s adoption of the federal centralized partnership audit regime enacted as part of the federal Bipartisan Budget Act of 2015, P.L. 114-74. The guidance was released over a year after the Senate and General Assembly of the State of New Jersey approved P.L. 2022, c. 133 on December 22, 2022. This law applies to any adjustments to a taxpayer’s federal taxable income on or after January 1, 2020.

The guidance provides two ways to report federal adjustments and pay the tax due:

1. Partners Pay: The default method is for the partnership to advise its partners to amend their New Jersey Gross Income Tax returns or Corporation Business Tax returns, include their distributive share of the final federal adjustments as explanations, and pay any additional taxes plus penalty and interest to the Gross Income Tax Audit Branch (Audit Branch) within 180 days after the final federal determination date.

2. Partnerships Pay: The second method allows a partnership to make an election to pay additional tax, penalty and interest on the partners’ behalf. The partnership must notify the Audit Branch that it is making that election within 90 days of the final federal determination date. The partnership must also submit the federal adjustments report, amended Forms NJ-1065 and Schedules NJ-K-1 within 90 days of the determination date. Further, the partnership must pay the additional tax, penalty and interest to the Audit Branch no later than 180 days from the determination date.

The guidance notes that partnerships may only use the partnerships pay election method to adjust New Jersey partnership returns if the partnership was audited by the IRS. This method is not available if the entity was not audited by the IRS.

The guidance is available here. The guidance discusses P.L. 2022, c. 133, which can be found here. The bill is A. 4295, 220th Leg., Reg. Sess. (N.J. 2022), which can be found here.