New Jersey Administrative Code
Title 18 - TREASURY - TAXATION
Chapter 7 - CORPORATION BUSINESS TAX ACT
Subchapter 21 - COMBINED RETURNS
Section 18:7-21.20 - Combined group tax return accounting methods

Universal Citation: NJ Admin Code 18:7-21.20

Current through Register Vol. 56, No. 18, September 16, 2024

(a) Tax returns filed by taxable members of a combined group and by members of a combined group shall be filed consistent with the provisions set forth in this subchapter (and specifically, N.J.A.C. 18:7-21.15, 21.16, and 21.17).

(b) The combined group's privilege period is determined, as follows:

1. If two or more members of the group file a Federal consolidated return, the group's privilege period is the tax year of the Federal consolidated group (or the Federal consolidated group with the most total assets, in the case where the members of the combined group file more than one Federal consolidated return); and

2. In all other cases, the group's privilege period shall be the privilege period of the managerial member.

(c) Where a corporation files Federal income tax returns on the basis of an annual period, which varies from 52 to 53 weeks, its privilege period shall be treated as beginning with the first day of the calendar month beginning nearest to the first day of such privilege period or ending with the last day of the calendar month ending nearest to the last day of such period.

(d) If the privilege period of one or more members of a combined group does not begin or end on the same dates as the group privilege period of the combined group, those members' accounting periods must be adjusted in order for the appropriate share of the combined group's unitary business income or affiliated group income, as the case may be, to be properly attributed to those members' privilege period.

(e) In general, any member that has a privilege period different from that of the combined group should determine its income and allocation data for the group privilege period of the combined group by using the interim closing method. This method requires an interim closing of the books for members whose privilege period differs from that of the combined group. However, a pro rata method of converting income to the combined group's privilege period will be accepted in certain instances, provided that the pro rata method does not produce a material misstatement of income allocated to New Jersey. Further, the Director reserves the right to require the use of the interim closing method in certain instances. Unless otherwise permitted or required by the Director, the treatment of both the income and the allocation data of any particular member must be determined based on the same method. If one method was used to account for a member's income and allocation data in the preceding privilege period and another method will be used in the combined return for the current group privilege period, adjustments to income and allocation data of the member shall be made to prevent income and allocation data from being omitted or duplicated.

(f) Pursuant to the interim closing method, the unitary business or affiliated group income or loss attributable to a member of a combined group is determined by first calculating the income or loss from the books and records of the member for the two periods that together encompass the combined group's single group privilege period. The allocation data shall also be determined by reference to the member's books and records for the appropriate partial privilege period. Interim income and allocation data from the respective partial privilege periods is then combined with the income and allocation data of the group privilege period of the combined group, along with the income and allocation data of other members of the combined group for the same period, and the members' share of the combined group's taxable income for the combined group's privilege period is computed.

(g) Pursuant to the pro rata method, the income and allocation data of the member, as adjusted to reflect the determination of income pursuant to New Jersey law, is assigned to the respective portion of the combined group's privilege period based on the ratio of months in common with the group privilege period of the combined group. The income and allocation data from the member's recomputed privilege period is then combined with the income and allocation data of the privilege period of the combined group, along with the income and allocation data of other members of the combined group for the same period, and is similarly recomputed, if necessary. The combined group's taxable income is then allocated to each of the taxable members of the combined group.

1. In the event that the pro rata method requires the determination of income and allocation data of a corporation whose privilege period has not yet closed, and the information cannot be obtained in time for the other members to file an accurate return, the income and allocation data for that period shall be estimated based on available information. If the use of actual income and allocation data results in a material misstatement of income allocated to New Jersey by the combined group, the taxable members must file an amended return to reflect the change.

2. For the purpose of determining whether a redetermination of income made with respect to the pro rata method results in a material misstatement of income allocated to New Jersey by the combined group, it is presumed that there is a material misstatement where the aggregate tax liability of the combined group members that filed returns based on a pro rata estimate is found to have understated the aggregate amounts pursuant to N.J.A.C. 18:7-5.10 and 13.1 or a change in the allocated group income for any one taxable member of the group increases or decreases.

(h) After determining the combined group's taxable income allocated to New Jersey of a taxable member that is not filing its return for the same privilege period, that income is then proportionately assigned to the applicable portion of that member's privilege period based on the number of months falling within the common group privilege period of the combined group.

(i) Where a member enters the combined group after the start of the combined group's privilege period, only the income, allocation data, and other tax attributes of the group member after it qualifies for inclusion are used to calculate and allocate the combined group's taxable income. Where a member leaves the combined group after the start of the combined group's privilege period, through a change of control or otherwise, only its tax attributes before it ceases to qualify for inclusion are used to calculate and allocate the combined group's taxable income. Whenever the income, allocation data, and other tax attributes of one or more members of the combined group are includible for only part of the period for which the combined group's taxable income is being determined and allocated, the value of the member's owned or rented property will be reduced to reflect the ratio of the number of months for which the member's tax attributes are included in the combined group's taxable income determination and the total number of months in the combined group's privilege period.

(j) The International Financial Reporting Standards (I.F.R.S.), which are issued by the International Accounting Standards Board (I.A.S.B.), qualifies as an acceptable method that "reasonably approximates income" pursuant to the Corporation Business Tax Act for the purposes of N.J.S.A. 54:10A-4.6.b, if that is the only method of accounting the specific entity used.

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