SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO . A

- 0252

- 18T1 ANDREW J. SHECHTEL, Plain tiff

- Appellant / Cross

- Respondent ,

v. D IRECTOR, DIVISION OF TAXATION, Defendant

- Respondent/ Cross

- Appellant.

________________________

Telephonically argued on March 24, 2020

– Decided September 3, 2020 Before Judges Rothstadt, Moynihan and Mitterhoff.
On appeal from the Tax Court of New Jersey , Docket No. 295

- 2017, whose opinion is reported at 31 N.J. Tax 8 9 ( Tax 201 8 ). John L indau Berger argued the cause for appellant /cross

- respondent (Lowenstein Sandler, LLP, attorneys; John L indau Berger, of counsel and on the briefs; Kenneth J. Sluts ky, on the briefs).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon a ny court

. " A lthough it is posted on the internet , this opinion is binding only on the parties in the case and its use in other cases is limited

. R

. 1:36

- 3.2 A

- 0252

- 18T1 Ramanjit K. Chawla, Deputy Atto rney General, argued the cause fo r respondent/cross

- appellant (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ramanjit K. Chawla, on the briefs).
PER CURIAM In this appeal , we are asked to determi ne whether the Tax Court properly interpreted the New Jersey Gross Income Tax Act (Act) , N.J.S.A. 54A:1

- 1 to 54A:10

- 12 , when it held as a matter of law that defendant , the Director, Divis i on of Taxation ( Division) , correctly determined that a taxpayer , pla intiff Andrew H. Shec h tel, could not reduce his taxable distributive share of a partnership's income in 2010 by partnership losses incurred in 2009. According to Shec h tel , his 2009 losses could not be ap plied in 2009 because they exceeded his "at risk"

ex posure in the specific partnershi p in 2009, but not in 2010. The Division contend ed that the Act was not subject to the "at risk" limitation imposed under § 465 of the United States In ternal Revenue Code (I.R.C.) that prevented the loss from being applied until the tax year in which the l oss exceeded the partner's at risk amount. The Division maintained that Shechtel should have applied the loss in 2009 and w hen he failed to do so, he lost the de duction f

orever and could not recoup it by retroactiv ely applying it to his 2009 income.3 A

- 0252

- 18T1

Shec htel pursued his claim in the Tax Court and on July 6, 2018, that court issued an order denying his motion for summary judgment, and granting the Division's cross

- motion f or th e same r e li e f, except as to the issue o f the interest and penalties imposed by t he Division to which it claime d it was entitled because of the improper application of the loss on Shechtel's 20 1 0 retu r n. In support of its order, the Tax Court issued a comprehensive opinion explaining why Shecht el incorrectly relied upon § 465 and ther efore was not entitled to the deduction

. See Shechtel v. Dir., Div. of Taxation , 31 N.J. Tax 89 ( Tax 2018)

. Thereafter , Shechtel appealed , arguing to us that the Tax Cour t incorrectly determined his liability as a matter of law . T he Division cross - appeal ed from the Tax C o urt's determination that it was not entitled to interest or penalties

. We have carefully reviewed both parties ' contentions in light of the undisputed f acts and applicable prin ciples of law. For the reason s that follow,

we reverse the T ax Court's determination as to Shechtel's tax liability and affirm its determination as to interest and penalties.
I. The salient facts are not disputed and were cogently described by the Tax
Cou rt in its opinion. For context, we repeat them here:

For tax years 2009 and 2010, [Shechtel] was a member of several entities which were taxed as partnerships.4 A

- 0252

- 18T1 One such entity was S&S Yield Company, L.L.C. ("SSY") in which plainti ff was a 99% member for tax years 2009 and 2010. For tax year 2009, [Shechtel] recei ved income from other partnerships totaling $16,858,589. His distributive share of loss from SSY wa s $14,915,338. Per [Shechtel] , pursuant to I.R.C. § 465, he could only use $10,051,551 of this loss (to offset income received from other partnerships) bec ause the total loss exceeded his at risk amount in SSY. The balance of $4,863,787 ($14,915,338 less $10,051,551) was federally disallowed and suspended until such time th at he made up or increased his at risk amount in SSY. He therefore reported $6,807,0 37 (although $16,858,589 minus $10,051,551 equals $6,807,038) as his distributive share of net partn ership income on his 2009 [Gross Income Tax ( GIT )] return. For tax yea r 2010, [Shechtel's] distributive share of passed

- through income from other partnersh ips totaled $18,616,866. His distributive share of loss from SSY was $6,746,831. To this amount, he added the 2009 suspended loss of $4,863,787 (totaling $11,610,718). H e then reported his n et partnership income on the 2010 GIT return as $7,006,148 ($18, 616,866 less $11,610,718). On the NJK

- 1 issued by SSY, a hand

written notation stated: "[t]here is an additional loss of 4863787 (sic) taken on this 2010 return. It was suspended in 2009 by 'at risk' rule, but allowed now." [The Division] audited plaint iff's 2010 GIT return about three years after it was filed and denied $4,863,787 of the $11,610,718 claimed loss. It explained that the

. . . Act "did not contain a provi sion for the carrybac k or carryforward of losses, nor does it recognize the Federal ' at risk' limitations for partnerships," as evidenced by N.J.A.C. 18:35

- 1.3(d),5 A

- 0252

- 18T1 which requires "any and all" passed

- through income/loss to be reported as a partner's distri butive share. [The D ivision] concluded that the "federal suspended loss" for SSY sho uld have been reported by [Shechtel] on his 2009 GIT return, and could not be "carried forward" to tax year 2010. Due to the disallowance, plaintiff's 2010 reported inc ome increased by $4,8 63,787, which in turn, increased the GIT due from the reported $ 622,330 to $1,058,611. [The Division] demanded the difference of $436,281, which with penalty and interest, totaled $540,107. This was despite the fact that for the 2009 tax year, plaintiff reported $1,525,453 as total tax paid (through withholdings and payments), and requested $903,123 (amount withheld/paid less reported GIT due $622,330) be used as a credit towards his 2011 GIT. [ Id. at 9 3

- 9 4. ] In rejecting Shechtel' s contentions , the Ta x Court first found that there was no basis for his argument tha t the suspension of his 2009 loss until 2010 was consistent with the Act's mandate that "[a] taxpayer's accounting method under this act shall be the same as his accountin g method for Federal income tax
purposes . " Id. at 95 (quoting N.J.S.A. 54A:8

- 3(c)). According to the court, the
I.R.C.'s limitation on a taxpayer's ability to recognize a partnership loss up to

" the aggregate amount with respect to which the taxpayer is at risk

. . . for such activity at the close of the taxable year , " I.R.C. § 465 (a)(1) , and then apply any

excess over the at risk amount to a subsequent year when the at risk amount was6 A

- 0252

- 18T1

sufficient, under § 465 (a) (2), was not a federal accounting method eve n though it was included with in those sections of the I .R.C. commonly vi e wed as defin ing federal accounting methods. See Shechtel , 31 N.J. Tax at 98. According to the Tax Court, § 465 was a legislative device to prevent tax shelters and based on its legis lative history, was not an accounting method that was to be employed in the calculati on of a taxpayer's income for New Jersey
GIT purposes . Id. at 98

- 100. The court stated that,

the crux of I.R.C. § 465 is whether, and how much, is the at risk amount. The consequent suspension of the deductibility of amounts in excess of the at risk am ount is dependent on when and how much of the at risk amount is restored, thus, not an attempt t o match the loss incurred with the income earned in the same taxable year, the aim of an overall accounting method. [ Id. at 99

- 100 (footnote omitted). ] For th at reason, t he court concluded "that I.R.C. § 465, is a substantive provision, and not merely a timing statute. Therefore, it is not incorporated into N.J.S.A. 54A:8

- 3(c)

. " Id. at 10 0

. The court found support for its dec i sion in N.J.S.A. 54A:5

- 2, which permits the application of losses that " occur within one category of gross income

. . . against other sources of gross income within the same category of gross income duri ng the taxable year. " Quoting from Estate of Guzzardi v.7 A

- 0252

- 18T1

Dir ector , Div ision of Taxat ion , 15 N.J. Tax 395 , 400 ( Tax 1995) , aff'd o.b. , 16 N.J. Tax 374 (App. Div. 1996), the court stated "[t] his allowance of loss offset requires that the ' items of loss and gross income must occur during the same taxable year. ' " Shechtel , 31 N.J. Tax at 101

. According to the court, even if § 465 was a federal accounting method, it could not " ' control the determination of

. . . losses, ' especially where N.J.S.A. 54A:5

- 2 does not incorporate nor reference ' federal accounting methods. ' " Ibid. (quoting Guzzard i , 15 N.J. Tax at 404 ). The Tax C ourt stated that " N.J.S.A. 54A:5

- 2 does not permit a carry

forward of the incurred and passed

- through loss of a prior tax year , " i d. at 103 , as the statute was not limited only to allowable loses under the I.R.C., " which [are] not useable solely because there is insufficient income in the same categ ory to absorb such loss ," i d

. at 104. The court concluded " that I.R.C. § 465 via applicatio n of N.J.S.A. 54A:8

- 3(c) does not render N.J.S.A. 54A:5

- 2 as either inapplicable or a s non - controlling ," and Shechtel's arguments that he be

allowed a carry forwar d of the federally disallowed loss until such time he increases his at risk amount (which co uld be as here, one year, or for an indefinite period as recognized by I.R.C. § 465)

. . . would not only render the loss carry

- forward prohibition of N.J.S.A. 54A: 5

- 2 redundant, but would also require that all other anti

shelter provisions

. . . also be d eemed immune to the application of N.J.S.A. 54A:5

- 2.8 A

- 0252

- 18T1 [ Shechtel , 31 N.J. Tax at 105

- 06. ]
The Tax Court then explained why Shechtel was time barred from recovering the excess GIT he paid in 2009 that was due to his following § 465

an d not applying his 20 09 partnership losses in full that year even though the result " undoubtedly enriched " the St ate through Shechtel's payment of more than he should have paid in 2009. Id. at 1 08. The cour t con c luded that although

[i]t appear [ed] unjust to retain such an a mount when [the Division] does not dispute that the $4,863,787 loss could have offset and reduced plaintiff's 2009 taxable income

. . . the inequity of

. . . retaining monies mistakenly paid

. . . is a necessary corollary to the application of statutes of limitation the basis of wh ich are " for salutary reasons of predictability and repose, " as opposed to fairness. [ Id. at 109 (quoting Superior Air Prods. Int 'l , Inc. v. Dir., Div. of Taxation , 9 N.J. Tax 463 , 477 ( Tax 1988) ) ]

. In reaching its conclusion, t h e Tax Cour t r eje c ted Shechtel's contention that he was entitled to such relief becau se the Division " never issued any publications, articles, or regulations on the effect of the at risk rules for GIT
purposes " because the Act was clear that losses could n o t be carried forw ard and no further guidance was necessary. Id. at 110.9 A

- 0252

- 18T1

Finally, t he Tax Court addressed the Division's imposition of interest and penalties on the amount owed by Shechtel as a result o f the disall o w a nce of his partnership loss. I n reje cting the Division 's attempt to collect those amounts, the court noted th at there was no dispute Shechtel paid more than what was owed in 2010 , after the disallowance of the carr ied forward loss , which was originally int en ded to be applied towards his 2011 liability

. Those excess amounts wer e available to the Division to ap p ly to any defi ciency in 2010. Therefore, no interest or penalties should have been charged. Thereafter, the parties filed cross

- motions for reconsid eration, which the court denied. This appeal followed. On appeal, Shechtel challenges the Tax Court's holding that " the at risk rules are not a federal method of accounting that is incorporated into the

. . . Act" and that as such they "would violate

. . . N.J.S.A. 54A:5

- 2['s] " ban on

c arrying over los s es from a prior tax year. He claims that the court "fail[ed] to giv e effect to all relevant statutory provisions ," and it erred by "conclud[ing] that tax shelters are eliminated without adopting the at

- ri sk rules." Finally, Shechtel argu es t hat th e Tax Court erred by refusing to find that "equitable doctrines precluded t he imposition of tax." In its cross

- appeal, the Division10 A

- 0252

- 18T1

contends it was error f or the Tax Court to "vacat[e the] interest and penalties " it imposed on Shechtel.
II.
In considering the Tax Court's decisions on summary judgment motions, our review is de n ovo employing the same standard as that court. Kite v. Dir

. , Div. of Taxation , 453 N.J. Super. 146, 152 (App

. Div. 2018) (citing Globe Motor Co. v. Igdalev , 225 N.J. 469, 479 (2016) )

. W hen reviewing a trial court's order granting or denying summary judgm ent, we apply the same standard that governs the trial court. Lee v. Brown , 232 N.J. 114, 126 (2018). Summar y judgment shall be granted when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. R . 4 :46

- 2(c). Here, the material facts are not in dispute, and the question raised on appeal is whether the Tax C ourt erred by finding as a matter of law that the Act barred Shechtel from applying his losses as required by § 465. In our review, we owe " no spe cial deference to the legal determinations of the [Tax] [C] ourt. " Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. , 224 N.J. 189, 199 (2016 ). "Although the Tax Court 's factual findings 'are entitled to deference because of that court's expertise in t he field,' we need not defer to its interpretation of a statute or legal principles." Advance Hous

. , Inc.11 A

- 0252

- 18T1

v. T ownship of Teaneck , 215 N.J. 549, 566 (2013) (quoting Waksal v. Dir., Div. of Taxation , 215 N.J. 224, 231

- 32 (2013)).
III. § 465 We begin our de novo review by addressing the parties ' contentions about the Tax Court's view of § 465 in this case . It i s undisputed that this provision of the I.R.C. expressly defines when a partner can apply a qualified loss to reduce his distributive share of partne rship income. I.R.C. § 465. Specifically, it provides that " any loss from such activity for the taxable y ear shall be allowed only to the extent of the aggregate amount with respect to which the taxpayer is at risk (within the meaning of subsection (b)) for such activity at the close of the taxable year. " I.R.C. § 465(a) (1)

. Under subsection (b)(1), "a taxpayer shall be considered at risk for an activity with respect to amounts including

— (A) the amount of money and the adjusted basis of other property c ontributed by the taxpayer to the activity, and (B) amounts borrowed with respect to such activity (as determined under paragraph (2)). " I.R.C. § 465(b) (1)

. Where the lo ss for any tax year exceeds the at risk amount and is therefore " not allowed under th is section for the taxable year [, it] shall be treated as a deduction allocable to such activity in the first succeeding taxable year. " I.R.C. § 465(a)(2).12 A

- 0252

- 18T1

If , as Shecht el argues , § 465 is a federal method of accounting, then under N.J.S.A. 54A:8

- 3(c) of the Act , he properly calculated his 2009 GIT liability by not including the amount of th e loss that ex c e eded his at risk amount and correctly applied it to 2010 when his at risk amount exceeded the loss. That portion of the Act mandates that "[ a] taxpaye r’s accounting method under this act shall be the same as his accounting method for Federal income tax purposes. "
N

. J

. S

. A

. 54A: 8

- 3(c). Years before Shechtel applied th e disputed loss, the Division publicly reinforced the r eq uir e ment that taxpayer s foll ow federal methods of accounting. Specifically , a 1998 edition of N.J. State Tax News , "a bi

- monthly newsletter published by the Division itself , " Airwor k Serv. Div. v. D ir., Div. of Taxation , 97 N.J. 290, 295 (1984) , which is considered an official publi cation, see Toys "R" Us, Inc. v. Dir., Div. of Taxation , 300 N.J. Super. 163, 172 (App. Div. 1997 ), contained information about the role of federal accounting methods. It stated the following:

A taxpayer's method of accounting for F ederal income tax purpo ses determines not only the method to be used to compute income but also determines whe n income is to be recognized for [ GIT] purposes, unless otherwise provided for in th e Act or under Regulations. Thus, in most instances, a taxpayer will recognize and r eport income for [GIT] purposes in the same period as he does for Federal income tax pu rposes.13 A

- 0252

- 18T1 [ N.J. State Tax News , Winter 1998, at 11 .] The Division reiterated this i nformation in 2000, stating in another edition of its publication that N.J.S.A. 54A:8

- 3(c) provides that a taxpayer's accounting method under the Act "shall be the same as his accounting method for Federal income tax purposes," and "[a] taxpayer's method o f accounting for Federal income tax purposes determines not only t he method used to c ompute income but also determines when income is to be recognized and reported. " N.J. State
Tax News , Winter 2000 , at 4 (emphasis added). Moreover, the Division stated
t hat "[i]f a taxpayer makes a Federal election that allows them to defer recognition a nd reporting of the income until some future time or event, they may do so for [GIT] purposes." Ibid. Here, it is undisputed that generally those federal methods of acc ounting are contained in Part II of the I.R.C. at §§ 446

- 475 , of w hich § 465 is obvio usly a part. Those sections are considered federal income tax accounting methods that are incorporated into the Act. See Guzzardi , 15 N.J. Tax at 403

. 1 They

1 W e view the Tax Court's reliance on Guzzardi to be inapposite. That case did not addr ess the federal accounting methods in Part II of the I.R.C. at §§ 446

- 475 . In that case, the taxpayer argued that the Act " adopt [ed] 'in toto

. . . the federal scheme for taxation of capital gains which clearly

. . . permits the carry forward of capital l osses.'" Id. at 399 (alterations in original)

. In rejecting that14 A

- 0252

- 18T1

" constitute the statutory law governing the accounting periods and methods al lowable for purpose s of calculating income subject to federal income tax. These are substantive provisions prescribing the taxable year

. . . in which income (loss) earned and allowable ite ms of deduction paid or incurred will be recognized. " Sabino v. Dir., Div. of Taxati on , 17 N.J. Tax 29, 35 (Tax 1997). By requiring the application of " federal income tax accounting methods

. . . , the Legislature has accepted all accounting methods reco gnized by the [I.R.C.] and the Regulations [ , and its] p urpose was to adopt a simple p rocedure for the determination and timing of income and deductions, in accordance with federal income tax accounting principles." DuBois v. Dir., Div. of Taxation , 4 N.J. Tax 11, 23 ( Tax 1981), aff'd o.b. , 6 N.J. Tax 249 (App . Div. 1982), aff'd , 95 N.J. 2 34 (1983)

.

"[M]ethod of accounting allowed for federal tax purposes"

. . . is not limited to the recognized overall methods of accounting, such as the cash method or accru al method, but rather was intended to include any method or system as used for federa l tax purposes ' by which taxpayers determine the amount of their income, ga ins, losses, deductions and credits, as well as the time when such items must be realized and re cognized ." [ Baldwin v. Dir., Div. of Taxation , 10 N.J. Tax 273 , 284 (Tax 1988) (emph asis added) ( quoting 10 Federal contention, the Tax Court specifically noted that it was not "decid[ing] the scope of [a provision in th e Act's] reference to federal income tax ac counting methods [as it relied upon a] spe cific, contrary provision [in the Act that it held] controls." Guzzardi , 15 N.J. Tax at 403

.15 A

- 0252

- 18T1 Tax Coordinator 2d ¶ G

- 2001 at 24, 103

- 24, 104 (Research Inst. of Am. Dec. 1987 ed.)) , aff'd , 237 N.J. Super. 327 (App. Div. 1990)

. ] By re ferring to federal accounting methods for income tax purposes, "what was intended was gains or losses that are recognized for federal income tax purposes in acc ordance with established federal income tax accounting procedures for measuring allowable gains and losses." Id. at 285 ( e mphasis added)

. Applying these well

- settled principles ab out the relation of the federal methods of accounting to the Act, we conclu de that the Tax Court here erred when it held that § 465 was excluded from those methods. That section specifically defines when and how the subject los s es can be realized and
t her efore by definition is a federal method of accounting

. That determination alone, however, does not resolve the issue

. T o the extent that another provision in the Act oth erwise prevents application of the generally required federal method of accounting, t hen that provision would control. See Guzzardi , 15 N.J.
Tax at 403

. N.J.S.A. 54A:5

- 2 In its opinion, t he Tax Court here relied upon N.J.S.A. 54A:5

- 2, which bars the carry ing forward of los s es, and found that it prevented Shechtel from16 A

- 0252

- 18T1

applying the dispute d loss to his 2010 income , even if § 465 was a federal

accoun ting method

. We disagree. In determining the meaning of this portion of the Act we apply well

- settled rules. "In construing a statute, our 'overriding goal is to determine as best we can the in tent of the Legislature, and to give effect to that intent. ' " Bermudez v. Kessler Inst. for Rehab. , 439 N.J. Super. 45, 50 (App. Div. 2015) (quoting State v. Hudson , 209 N.J. 513, 529 (2012)). A n agency's interpretation of a statute it is charged with ad ministering should not be upheld if it is "contrary to the

ev ident purpose of the statute

. " Reck v. Dir. Div. of Taxation , 345 N.J. Super. 443, 448 (App. Div. 2001) (quot ing Blecker v. State , 323 N.J. Super. 434, 442 (App. Div. 1999))

. "[W]hatever be the rule of [ statutory ] construction, it is subordinate to the goal of effectuating the legislative plan as it may be gathered from the enactment read in full light of its hi story, purpose and context. " Koch v. Dir. Div. of Taxation , 157 N.J. 1, 7 (1999) (se cond alteration in o riginal) (quoting State v. Haliski , 140 N.J. 1, 9 (1995))

. "[I]t is a fundamental principle of statutory interpretation that a court 'should try to giv e effect to every word of the statute, and should not assume that the Legislature use d meaningless langua ge. ' " Verniero v. Beverly Hills , Ltd., 316 N.J. Super. 121, 127 (App. Div. 1998) (quoting Med. Soc'y of N.J. v. N.J. Dep't of Law17 A

- 0252

- 18T1

& Pub. Safety , 120 N .J. 18, 26 (1990)). Moreover, " it is well

- established that a statute should not be c onstrued in a manner that renders any portion of it a nullity

. " Smith v. Dir. Div. of Taxation , 108 N.J. 19, 27 (1987)

.

When there is a conflict in interpretation, it i s well

established that "a legislative provision should not be read in isolation or i n a way which sacrifices what appears to be the scheme of the statute as a whole. Rather a statute is to be interpreted in an integrated way without undue emphasis on any particular word or phrase and, if possible, in a manner which harmonizes all of its parts so as to do justice to its overall meaning." [ Koch , 157 N.J. at 7 (quoting Zimmerman v. Mun

. Clerk of Berkeley , 201 N.J. Super. 363, 368 (App. Div. 1985)).] "The first step in determining the Legislature's intent is to look at the plain language o f the statute." Caput Mortuum, L

. L

. C

. v. S&S Crown Servs., Ltd. , 366 N.J. Super. 323, 332 (App. Div. 2004). A statute's plain language serves as "the best indicator " of the Legislature's intent

. DiProspero v. Penn , 183 N.J. 477, 492 (2005)

. When we dis cern the meaning of the Legislature's selected words, we may "draw inferences based on the statute's overall structure and composition." State v. S.B. , 230 N.J. 62, 68 (2 017). "In reading the language used by the Legislature, the court will give words the ir ordinary meaning absent any direction from the Legislature to the contrary. 'If the plain language leads to a clear and unambiguous result, then [the]18 A

- 0252

- 18T1

interpretiv e pro cess is over.'" TAC Assocs. v. N.J. Dep't of Envtl. Prot. , 202 N.J. 533, 541 (2010) (alteration in original) (citation omitted) (quoting Richardson v. Bd. of Trs., Police & Firemen's Ret. Sys. , 192 N.J. 189, 195 (2007)). However, "[w]hen the plain m eanin g does not point the court to a 'clear and unambiguous result,' it then considers ext rinsic evidence from which it hopes to glean the Legislature's intent." Ibid. (quoting Bedford v. Riello , 195 N.J. 210, 222 (2008)). Included within the extrinsic e viden ce a court may consider "are legislative history and statutory context, which may she d light on the drafters' motives." Ibid. The plain language of this section of the Act states that los s es realized in one tax year cannot be applied to a subsequent year' s income. Specifically, the
statute states , in pertinent part , that "[l] osses which occur within one category of gross income may be applied against other sources of gross income within the same category of gross income during the taxable year. " N.J.S. A. 54A:5

- 2

. Although the statute does not expressly require that loss be taken in the "same" taxable year, "[i]t is firmly established that [N.J.S.A. 54A:5

- 2] does not allow a taxpayer to apply losses from one tax year to offset income in an other tax year

. " Murphy v. Dir., Div. of Taxation , 26 N.J. Tax 432, 449 (Tax 2012)

. "Unlike the19 A

- 0252

- 18T1

[I. R.C.] , the GIT Act does not allow for the carry forward or carry back of losses, underlining the annual nature of the State tax. " 2 Ibid. However, the s tatute assumes t hat the loss a taxpayer might seek to carry forward is a loss that could be applied u nder federal accounting methods to an earlier year. And, as already discussed, a loss that exceeds a partner's at risk amount in the endeavor is not cogni zable until the year in which the at risk amount is sufficient to allow for the application of the lo s ses . A commonsense reading of the plain language of N.J.S.A. 54A:5

- 2 requires that there be a loss that , but for the statute , could be carried over if allowed under fede ral accounting methods. Under federal accounting methods, Shechtel did not have a lo ss he could fully apply in 2009. Under the Tax Court's interpretation of the relationship between § 465 as incorporated by N.J

. S.A. 54 A :8

- 3 , and N.J.S.A. 54A:5

- 2, partners hip losses for th e years prior to 2012 could have been unlimited and taken even in ye ars in

2 An exception to the prohibition in carrying forward losses became effect ive in 2012 and is set forth in N.J.S.A. 54 A:3

- 9

. L. 2011, c. 60, § 2 . It was enact ed to permit taxpayers to carry forward net losses from business

- related categories of income and apply those losses "against income in future taxable years." L. 2011, c. 60, § 1. It s pecifically allow s taxpayers to carry forward losses sustained fr om th eir distributive share of partnership income and apply those losses against income (albeit, within the same category of income) in subsequent tax years. Ibid. ; see also N .J.S.A. 54A:3

- 9.20 A

- 0252

- 18T1

which a partner had "no skin in the game." Re q uiring that before a loss can even be realized it must exceed the partner 's at risk amount is consistent with the
goa ls of the Act. Like § 465, which was designed " to combat what Congress perceived to be an increasing incidence of abuses in tax shelters ," Brand v. Comm'r of Internal Revenue , 81 T.C. 821, 828 (1983) ; see also S hechtel , 31 N.J. Tax at 105 , " tax shelter av oidance was [also] a significant legislative objective" of the Act , Smith , 108 N.J. a t 30. It would be antithetical to the Act's purposes if N.J.S.A. 54A:5

- 2 was understood to require a partner to apply a loss in a tax year where the partner had no exposur e. Stated otherwise, i f a taxpayer's right to apply a loss occurred before it exceed ed his or her at risk amount was sufficient, the tax payer who had no at risk amount to lose , would be able to reduce to even zero any " distributive share of partnership in come , " N.J.S.A. 54A : 5

- 1(k), that would otherwise be taxable , even though he or she ne v e r actually realized any loss

. Consistent with the purposes of the Act, the application of § 465 prevents that result by not making a loss allowable only in the y e ar in which the at risk amount is sufficient. We turn to Shechtel's circumstances here to illustrate the impact of upholding the Tax C ourt's decision in this case on the purposes of the Act

. As discussed above, Shechtel' s distributive share of SSY's loss in 2 009 was21 A

- 0252

- 18T1

$14,915,338 and his at

- risk economic amount in SSY was $10,051,551 at the
end of 2009. Thus, under the federal income tax method s of accounting stated in § 465, Shechtel could not use his entire distributive share of SSY loss in 2009 to offset his income from other partnerships; rather, he was only permitted to deduct $10,051,551 of his distributive share of SSY loss, representing his amount at risk in SSY in that year. The remaining $4,863,787, or the SSY suspended loss, was not allowable
until plaintiff increased his amount at risk in SSY. However, plaintiff's other partnershi p income in 2009 was large enough that, if the SSY loss had not been suspended by § 465, plain tiff would have been able to apply the full amount of $14,91 5 ,338 against his 2009 partnership income, thereby providing him with a significant tax benefit in 200 9. Although Shechtel did not do so because of his belief that § 465 was incorporated into the Act by N.J.S.A. 54A:8

- 3, such a deduction would have operated as a tax shelt er in his favor by allowing him to offset his partnership income by a phantom loss in excess of the actual loss sustained by plaintiff. The benefit derived by such a phantom loss was prevented by the federal at risk rules

. Under the Tax Court's holding , it would have been an allowable tax shelter contrary to the Act's purposes. Thus, t he T ax C ourt's interpretation of the Act22 A

- 0252

- 18T1

would allow income to escape tax, "a result not inten ded by the Legislature." Walsh v. State, Dep't of Treasury, Div. of Taxation , 10 N.J. Tax 447, 462 (Tax 1989) , aff'd o.b. , 240 N.J. Super. 42 (App. Div. 1990)

. Under these circumstances , we are constrained to reverse the Tax Court's holding in this case and direct that summary judgment be entered in favor of Shechtel and against the Division

. IV

. Recoupment and Mitigation In light of our determination that Shech tel was entitled to apply his 2009 loss against his 2010 distributive share of partnership income, we need not address at length his contentions about the Tax Court's refu sal to allow him to recoup his lost allowable losses. For completeness, w e make the foll owing brief observations. We conclude that even if we were to affirm the Tax Court's decision here, Shechtel should have been allowed to recoup his lost deduction unde r the "square corners" doctrine, rather than been barred from recovery. We find
supp ort in the fact that the Division's official publication continuously re iterated the need to follow the timing provided for recognizing taxable income, which23 A

- 0252

- 18T1

by definition is calculated after applying allowable losses, as stated in the federal accounting m etho ds under the I.R.C. To hold other wise would all o w the Division to not "turn square corners" to the taxpayer's detriment. See Residuary Trust v. Dir. Div. of Taxatio n , 28
N.J. Tax 541, 546

- 47 (App. Div. 2015) (stating "an agency may not spring upon
t he r egulated community a new policy, never before announced, and apply it retroactively" )

. "The square corners doctrine is particularly important in the field of taxation , because trusts, businesses, individuals and others must be able to reliably
engage in tax planning and, to do so, they must know what the rules are." Id. at 548. It is "fun damentally unfair" for the Division to announce in its official publication tha t, under a certain set of facts, federal methods of accounting will be applied, "and then retroactively apply a different standard years later." Ibid. " C ourts have not hesitat ed to apply the [square corners] doctrine to preclude the assessment of tax whe re taxpayers made financial decisions relying on representations by State officials r egarding how tax laws will be applied, only to have those officials change position later ." Milligan v. Dir. Div. of Taxation , 29 N.J. Tax 381, 400 (Tax 2016)

. We find t he present cir cumstances to be of t h e type that entitled Shechtel re l ief.24 A

- 0252

- 18T1

However, we reject Shechtel's contention that, even if he was barred by N.J.S.A. 54A : 5

- 2 from applying his 2009 losses to 2010, he was entitled to equitable recoupment. "As an equit able concept, judges invented the doctrine of equitable recoupment in order to avoid an unusually harsh or egregious result from a strict application of a statute of limitations." Superior Air Prods. Int'l,
Inc. , 9 N.J. Tax at 471. A claim of equitable r ecoupment must have three essential elements: "(1) a single transaction, (2) an iden tity of interest among parties, and (3) a need to balance the equities." Id. at 473.

" [ A ] single transaction , '[i s ] one involving only a particular item on a tax
return or a single event or transaction during the tax period [in question].'" Id.
at 474 ( third alteration in original) (quoting Nat'l Cash Register Co. v. Joseph , 86 N.E.2d 561, 562 (N.Y. 1949)). Thus, "a claim of equitable recoupment will lie on ly where the Government has taxed a single transaction, item, or taxable event under two inconsis tent theories." Gen. Motors Acceptance Corp. v. Dir., Div. of Taxation , 25 N.J. Tax 428, 439 (Tax 2010) (quoting United States v. Dalm , 494 U.S. 596, 605

- 06 n .5 (1990)). The Tax Court here correctly concluded that Shechtel's claim involved
two separate transactions so that recovery under equitable recoupment was not permitted. We have no basis to disagree.25 A

- 0252

- 18T1

We also reject Sh e chtel's contention that the T ax C ourt should h ave applied the doctrine of mitigation, under I

. R

. C

. §§ 1311

- 1314, which according
to Shechtel, allows "a taxpayer to correct the effect of an erroneous treatment of an item in a taxable year which is closed by the st atute of limitations where, in determin ing the tax for another taxable year, it is determined that the item was treated erro neously in the closed year." The problem is the mitigation rules Shec h tel cites h ave not been incorporated in to the Act nor applied by New Jersey courts , a fact that She chtel concedes. The T ax C ourt rejected plaintiff's argument that mitigation should

a pply, concluding that Shechtel's "request that this court afford relief similar to the mitigation provisions of I

. R

. C

. § 1313 cannot be entertained as the court cannot eng raft a federal statute into the GIT Act." Shechtel , 31 N.J. Tax at 110
n.10. We agr ee. I t is well

- established that the Act is not modeled on the Internal Revenue Code and our Legislature "chose, instead, to create an income tax based on a simpler system , shorn of many of the deductions and credits incorporated in federal law." Murphy , 26 N.J. Tax at 444. Thus, federal tax concepts will not be incorporated into the Act unless "a provision of the GIT Act expressly incorporates" them

. Ibid.26 A

- 0252

- 18T1

"Our tax laws must be interpreted in light of the Legislature's express intent that New Jersey tax law diverge from the federal model in significant respects." Waksal , 215 N.J. at 241. There is no authority in the Act or in our case law that permits a court to apply the mitigation rules relied upon by Shechtel. We have no basis to hold to incorporat e those rules into the Act or apply them to this matter.
V. Interest and Penalties We also conclude that we have no cause to disturb the Tax Court's determination that int erest and penalties were not warranted. We find the Division's arguments to the cont rary to be without sufficient merit to warrant discussion in a written opinion. R. 2:11

- 3(e)(1)(E). Suffice it to say , we agree with the Tax Court's reliance on Shec h tel 's overpayment of his taxes in 2010 as

reason for interest and penalties not being as sessed under th e circumstances

. The Division's reliance on Shechtel's request to apply any overpayment to a succeeding tax year did not deprive the Division of the abilit y to apply the payment to the current tax year if needed because if taxes were du e, t here was no overpayment to be a pplied in accordance with the taxpayer's instructions.27 A

- 0252

- 18T1

The mere fact that the Division did not realize that issue until it a udited Shec h tel 's returns in 2014 did not alter that reality. Affirmed in part; reversed in part and remanded to the Tax Court for entry of an order granting Shechtel's motion for summary judgment and denying the Division's motion

. We do not retain jurisdiction

.