Sidney Koch and Dorothy Koch, Plaintiffs-Appellants v. Director, Division of Taxation, Defendant-Respondent

Summary

The New Jersey Supreme Court reversed the Appellate Division, holding that under N.J.S.A. 54A:5-1c a taxpayer’s basis for a partnership interest must be adjusted to exclude losses that are not deductible under the Act, so the taxable gain is limited to the economic gain of $50,000. The Court reasoned that the statute’s three incorporated federal concepts must be harmonized to avoid taxing a return of capital.