New Jersey Closing Agreement Overview
The State of New Jersey does not have a formal “offer in compromise” agreement program like the Federal Government. What they do have is a program where the taxpayer can ask the Division to accept a “Closing Agreement.” In effect, a Closing Agreement is the same general idea as an offer in compromise (OIC). In other words, the taxpayer is asking the state to accept a lesser amount than their full delinquent tax liability. The arrangement will include the delinquent tax due, as well as, penalties, interest and any collection fees that have accrued.
The Division only provides general guidance as to what specific criteria a taxpayer must meet to qualify. New Jersey law gives the Division full discretion to accept Closing Agreements. The guidance reads as follows:
“[F]or any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the director that the state of New Jersey will sustain no disadvantage through consummation of such an agreement.”
The code section does not elaborate on specific criteria or processes that must be, or should be, implemented to determine when settling a delinquent tax debt would be an advantage to the State of New Jersey.
Further, the Division does not give guidance as to how it implements the above-stated law. However, they provide some detail as to general eligibility requirements, submission requirements, and financial documents needed. We discuss these items in more detail below.
The New Jersey Closing Agreement statute allows the Division to enter into Closing Agreements with taxpayers for any state tax administered by the Division for any taxable period ending before or after the date of the agreement.
The following are the requirements for submitting a Closing Agreement Request:
- The taxpayer must complete and submit NJ Form 906 – Closing Agreement Request. This application can be found here: https://www.state.nj.us/treasury/taxation/pdf/other_forms/special_pro/906.pdf.
The following the Division needs the taxpayer to include with the submission of a Closing Agreement request:
- NJ Form 906 – Closing Agreement as to Final Determination Covering Specific Tax Matters.
- A copy of the taxpayer’s individual IRS tax returns and Corporate tax returns for the last two years (if applicable)
- A copy of filed Federal tax liens, if applicable.
- Copies of the most recent real estate mortgage statements with monthly payment amount and current balance due, if applicable.
- A copy of court-ordered judgments owed (other than federal and state), if applicable.
- Copies of monthly bills for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous – if amounts exceed nationally allowed standards (discussed in more detail below).
Filing Process and Considerations
The State of New Jersey requires that the taxpayer submit the completed Closing Agreement in paper copy. Taxpayers should send their request and supporting documents to:
New Jersey Division of Taxation
Closing Agreements, 9th Floor,
PO Box 245, Trenton, NJ 08695-0245
Taxpayers should be aware that the submission of a Closing Agreement Request does not prevent the Division from filing a COD, tax refund offsets, or stay any enforced collection actions, including garnishments or foreclosures. Further, the filing of a Closing Agreement Request does not protect the taxpayer from otherwise making payments under a previously negotiated Installment Agreement.
Taxpayers should be aware that the Division reserves the right to use any information the taxpayer provides in the Closing Agreement Request for debt collection purposes.
Review and Determination
Once the Division has received the Closing Agreement Request and supporting materials, they will review it. The Division will accept, reject or counter-offer. It generally will make this determination and notify the taxpayer within 3-6 months.
The Division reviews the following financial information during review of a Closing Agreement Request:
- Employment Information
- Spouse’s Employment Information (including non-liable spouses)
- Dependent Information
- Monthly Income and Expense Information
- Taxpayers will be allowed the national standards for food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous, based on their family size, without question (a copy of the standards is attached to the NJ Form 906). If the monthly expense amounts exceed the national standards, the taxpayer must provide documentation to substantiate those expenses are necessary living expenses. Generally, the total number of persons allowed for family size are the same as those allowed as exemptions on the taxpayer’s most recently filed tax return.
- Cash, bank accounts, stocks, bonds and other securities, cash value life insurance, motor vehicles (owned and leased), debts owed to you, household furniture and goods, items used in a trade or business, real estate, and all other assets not already listed.
- Bills owed, installment debt, federal taxes owed, state taxes owed, real estate mortgages, loans payable, judgments owed, and all other debts not already listed.
A Decision Within Three to Six Months
The Division will issue a notice to the taxpayer stating whether the Closing Agreement Request has been accepted, rejected, or a counter-offer proposed. Taxpayers will usually receive this notice within 3-6 months after the filing of their Request. The taxpayer does not have the right to appeal a denial of a Closing Agreement Request. However, they do have the ability to refile the application if their circumstances change. Furthermore, the tax liability will not be subject to audit, and the taxpayer cannot claim a refund.
Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.