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On May 27, the New Jersey Tax Court found that the New Jersey Division of Taxation could not adjust NOL carryforwards that were created in years that were closed due to the state’s four-year statute of limitations against assessment. The Tax Court stated that such an adjustment would be “tantamount to an adjustment of the income reported in those years and thus constitutes an audit of closed years, which is impermissionable under the” New Jersey four-year statute of limitations.

This decision, if upheld, should provide taxpayers with some certainty regarding NOLs generated in years that are otherwise closed. The decision also may have other applications, given the Tax Court’s conclusion that it is not bound by the IRS construction of federal statutes.