Tax Court: Anita K. Leather v. Director, Division of Taxation, Docket No. 000852-2018; opinion by Sundar, J.T.C., decided October 23, 2019. For plaintiff – Anita Leather (Self-Represented); for defendant – Gurbir S. Grewal, ttorney General of New Jersey (Miles Eckardt, Deputy Attorney General).
Held: Defendant’s motion for summary judgment seeking dismissal of plaintiff’s complaint challenging the assessment of New Jersey gross income tax (“GIT”) is enied. Although legally obtained Department of Veterans Affairs (“VA”) disability benefits are exempt from GIT, if such benefits are fraudulently obtained, as plaintiff’s ex-husband did during tax years 2000-2009 when plaintiff and he were married and filed joint tax returns, then the benefits are subject to GIT under N.J.S.A. 54A:5-1(o) as income from a criminal act. As defendant assessed plaintiff after the normal three-year statute of limitations had expired, for suspension of the same and for the assessment to stand, the returns subject to assessment must have been “false or fraudulent” and “filed with an intent to evade tax.” N.J.S.A. 54A:9-4(c)(1)(B). Such intent must be evinced by “conduct intended to conceal, mislead, or otherwise prevent the administration and collection of the taxes imposed by the laws of this State.” N.J.A.C. 18:2-2.9(b); 2.9(d). The facts in support of defendant’s summary judgment motion only show that plaintiff did not know that her then-husband’s VA benefits were obtained by fraud, or whether the benefits were includable as income, and that she reported the benefits to the CPA who prepared the GIT returns. Defendant however presented no evidence to prove that plaintiff filed a false or fraudulent GIT return for tax years 2000-2009 with an intent to evade tax that was known to be due. The statute of limitations thus acts to bar granting summary judgment as a matter of law. The lack of evidence in support of an intent to evade tax similarly means that defendant is not entitled to summary judgment with respect to the 50% civil fraud penalty imposed on plaintiff. Because summary judgment is denied on statutory grounds, there is no need to address plaintiff’s equitable argument that she should be afforded “innocent spouse relief” like that available under the I.R.C. § 6015.