Waksal v. Director, Division of Taxation

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At issue in this case was the deductibility of a worthless nonbusiness asset under the New Jersey Gross Income Tax Act. The Waksals filed a complaint in Tax Court, challenging a deficiency assessed on their sale of the asset on the ground that section 5-1c of the Act authorized their deduction of a worthless nonbusiness debt by incorporating the Internal Revenue Code’s treatment of such debts into New Jersey’s tax law through language stating that gains or losses should be determined by methods use “for federal income tax purposes.” The Waksals and the Director of the Division of Taxation cross-moved for summary judgment, and the Tax Court granted the Director’s motion, holding that section 5-1c only applies when a taxpayer has sold, exchanged or disposed of property, and that its applicability may depend on the circumstances of the underlying transaction. The Tax Court dismissed the Waksals’ complaint. The Waksals appealed, and the Appellate Division affirmed substantially for the reasons cited by the Tax Court. Upon review, the Supreme Court concluded that the worthless nonbusiness debt at issue was not a “sale, exchange or other disposition of property.” Section 5-1c did not integrate into the Act every provision of the Internal Revenue Code governing capital gains and losses, and 26 U.S.C.A. 166(d)(1)(B) did not constitute a federal “method of accounting” for purposes of this case. View "Waksal v. Director, Division of Taxation" on Justia Law