NYS Residency: New Domicile Case: Matter of Cooke

“This article originally appeared in the February 2013 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.”

 

The Cooke Case
by Brian Gordon

In June 2012, the New York State Department of Taxation and Finance issued new Nonresident Audit Guidelines, which it posted on its site. As noted in earlier articles, these guidelines seemed to indicate a new perspective on how the department would be approaching the complex and controversial issue of state residency for income tax purposes. A new case, decided late in 2012, gives some additional insight into the department's current approach toward residency.

In the Matter of the Petition of Gordon R. and Jennifer L. Cooke, issued November 15, 2012, an administrative law judge (ALJ) found that the petitioner (Gordon Cooke) changed his domicile from New York City to the Hamptons on the east end of Long Island, N.Y. This is a very interesting case because a residence used primarily on weekends and holidays was found to be the domicile. Of special interest to CPAs and the clients they serve are the factors outlined in the Audit Guidelines and the facts in this case which led to findings in favor of the taxpayer.
Background: Residency and Domicile Definitions
To understand Cooke, there's a need to know the basic New York residency rules: People are residents of New York if they are domiciled there. "Domicile" in simple terms is a person’s primary residence. Someone would also be a resident, commonly referred to as a Statutory Resident, if he or she maintains a permanent place of abode (residence) in New York state or New York City and they are present in the jurisdiction for more than 183 days. The focus of Cooke is on domicile.
It's not a cut-and-dried decision: Domicile is an issue of intent. That is, people can choose where they want to live, but they must choose, and actually make a change. They must have the feeling that the new place is their “home”—a place that they will return to when they are absent. The burden is upon any person asserting a change of domicile to show that the necessary intention existed.
According to the 2012 NYS Nonresident Audit Guidelines, there are five primary factors the state will consider in analyzing whether a house is a "domicile." None of them stand alone. They all must be analyzed to reach a proper conclusion.
The five primary factors are:
Home: This is a comparison of the residences. The state compares the (1) size, (2) value and (3) nature of use (lifestyle). The most important of these three is "nature of use." In a case such as Cooke, where the issue was between one residence in the city and one in the suburbs, the state looks at what type of life the resident was leading. Is the focus of the resident's life family, friends, holidays, social engagements, sports? Where do those activities take place?
Business Connection: Where you work is important in determining domicile. However, those with resources may decide to keep an apartment near their job and use it like a hotel, while being domiciled in the suburbs where the focus of their life is.
Near and Dear Items: This refers to important tangible items that most people would want to keep with them in their home. They include family photos, collectible items, family keepsakes, documents, trophies and awards, valuable artwork and other valuable items. It is not necessarily the monetary value of these items that will be considered as there are many people that can afford to decorate their homes with very expensive items, but it is the sentiment attached to these items that make them part of one’s primary home. (This has particular meaning in Cooke, noted below, as children's artwork was limited to one of the family's homes, as discussed below.)
Time: This is a calculation of the time spent at each location. This could be a major factor if it is heavily skewed in one location; however, if there is only a small difference, then the other primary factors will be more heavily evaluated.
Family: The state elevated this in the 2012 guidelines to be a primary factor analysis. Family has played such an important role in domicile cases that it could not be overlooked. See Matter of Buzzard (Tax Appeals Tribunal, February 18, 1993, confirmed 205 AD2d 852, 613 NYS2d 294 [3d Dept 1994]). The family factor also played an important role in Cooke.
Finally, "Lifestyle," or “habit of life,” while not specifically enumerated as a primary factor, is interwoven throughout the factors.
The Cooke Case: How the Factors Were Applied
Gordon Cooke conceded that he was domiciled in New York City from 1975 through 1984. In late 1984, the family completed construction of a home at Merchants Path, Bridgehampton , New York—the Hamptons region (the "Merchants Path House"). The Cookes completely furnished the entire home with new items, spending more money than they had ever spent furnishing their New York City apartment. This is part of the home factor analysis, including nature of use.
The Cookes also moved an abundance of their valuable and cherished possessions out of the New York City apartment and into the Bridgehampton house. These included their deceased parents’ papers, a family bible and extensive stamp collection, valuable Curtis Indian prints, Greg Perillo pen and ink drawings, and their children’s artwork, photographs, awards, trophies, and yearbooks. This is included in the analysis of near and dear items and shows a shift to the Hamptons.
In 1983, the family joined St. Ann’s Episcopal Church in Bridgehampton and both of the children were baptized there two years later. Since then, the family has been very involved in activities at the church and regularly attends Sunday services. Both daughters served as acolytes at St. Ann’s when they were younger. The Cookes did not belong to any church in New York City. This evidences the family's lifestyle.
Between late 1984 through 1995, the family's weekly routine typically commenced with a drive to New York City from Sagaponack with his family on Sunday evenings. The family spent Monday through Friday residing in the New York City apartment. During the workweek, Gordon Cooke spent the great majority of his daytime hours working in New York City. Meanwhile, Jennifer Cooke (wife and mother) took care of the children and began taking classes in the city. Once they attained the proper age, the children attended private schools in New York City during this period. The children were very active in scholastic athletics, but did not entertain many friends or socialize while in New York City. On Fridays, the Cookes would drive back out to their Merchants Path House, where they would spend the weekend.
During this nine-year period, the Cookes spent the majority of their free time at their Merchants Path House. Besides spending weekends, they celebrated most holidays there. Additionally, the family hosted many parties for family and friends at the Merchants Path House. They also enjoyed many birthdays and other major family occasions there, such as a tenth wedding anniversary and Jennifer Cooke’s 40th birthday. During this period, such occasions were seldom, if ever held in the New York City apartment. The children participated in extracurricular activities in the Bridgehampton area and later obtained summer jobs there. These are primarily home and lifestyle issues, and show a strong attachment to the Hamptons home and area.
The Cookes filed New York City resident personal income tax returns through 1995. Although Gordon Cooke claims to have been domiciled outside of New York City since 1985, he was required to file as a “Statutory Resident” because he maintained a residence in the city and was present there for more than 183 days. (The facts state that he spent Sunday night through Friday in New York City. Six days per week totals 312 days for a year. Even considering holidays, vacations and business trips, he obviously conceded that it was more than 183 days.)
Business Factor Changes—and an Audit
There was a change in the “Business Factor” near the end of 1995. At that time Gordon Cooke became president and CEO of J.Jill Group/D.M. Management (J.Jill), which is headquartered in Quincy, Massachusetts. Upon joining J.Jill, his primary business activity was no longer in New York City. He remained as president and CEO of J.Jill through May 2006.
In order to accommodate his new work venue, Gordon Cooke rented an apartment in Boston, and stayed there during the workweek. After discussion with his wife, Gordon Cooke chose not to relocate his family to Boston with him because the children were already established in their schools in New York City.
In 2002 (the beginning of the audit period), the Cookes decided to sell the Merchants Path House and buy a new house on Parsonage Pond Road, Sagaponack, New York (Parsonage Pond House)—also in the Hamptons. The Parsonage Pond House was much larger than the Merchants Path House, being approximately 5,500 square feet in size, and cost $3.6 million. Although their children were grown by that time (aged 24 and 19), the Cookes wanted to purchase a larger Hamptons house because, as they testified, they envisioned growing old there together and hosting their children’s families. Lauren Cooke, one of the daughters, described the Parsonage Pond House as her parents’ “dream home.” This is an obvious boost to the home factor in the Hamptons.
During the audit period, daughter Lauren was also working at J.Jill and living in Boston, and daughter Erica was at Brown University in Rhode Island. Jennifer continued her weekday classes in the city, but their daughters’ bedrooms in the city were converted for other functions after their departures. Lauren and Erica Cooke each have a bedroom at the Parsonage Pond House, containing all of their treasured personal memorabilia from their childhood. Lauren explained that she still stays in that room when she visits her parents.
Gordon Cooke testified that since his retirement from J.Jill in May 2006, he has spent more time than ever at the Parsonage Pond House. In addition, he and his wife continue to host parties and holidays there. They stated that they plan to remain in the Hamptons for the remainder of their lives. This is proof that they had the required intent to make this their home.
As a result, the Cookes were able to make the following case for the residency audit years of 2002 to 2004:
Home: Large “dream home” in Hamptons compared with “utilitarian” apartment in the city. Hamptons home used for family gatherings, social events, lifestyle hobbies. The city apartment was used for occasional business trips—no social events.
Business: Primarily Massachusetts. Occasional business trip to the city.
Near and Dear: All precious items and important documents were kept in the Hamptons.
Time: Time in Hamptons and city were about equal. However, Gordon Cooke went to the Hamptons to relax and live his lifestyle, while the city time was primarily work.
Family: While he saw his wife in the Hamptons and the city, Gordon Cooke saw his daughters only in the Hamptons.
Despite this summary, the New York City Audit Division argued that the Cookes' claimed Hampton's home was nothing more than a “weekend/vacations Hamptons lifestyle.”
The government's position may have had more strength prior to the audit period—that is, when Gordon Cooke was still working in New York City, rather than Massachusetts. However, the ALJ didn’t differentiate, citing the Tribunal case Matter of Craig F. Knight (Tax Appeals Tribunal, November 9, 2006), indicating that someone can maintain a residence and work in the city while being domiciled in the suburbs. As noted in Knight:
The presence of a suburban commuter at work or play in New York on most days, without more, does not create a New York domicile and the frequency of theater attendance or restaurant meals seems to have little probative value on the issue of whether his or her home continues to be in the suburbs. If other factors indicate that an individual is a mere sojourner whose home is elsewhere, that status will not be elevated to domicile by the frequency of visits.
The Cooke ALJ further stated that the audit position had ignored the evidence in this case of the "overwhelming amount of family activities and general habit of life that took place in the Hamptons throughout the calendar year." Regardless of whether he was working in New York City or Boston, the Hamptons was the place to which Gordon Cooke intended to return whenever he was absent.
During years in question, 2002 to 2004, while it was true that Gordon Cooke's time in the Hamptons was primarily on weekends, he was spending most of his weekdays in Massachusetts because his job was there. Since he had severed his main business tie with New York, and his daughters had moved out of the city apartment, home base for the family was the Hamptons.
Also according to the ALJ: Both Gordon and Jennifer Cooke and their daughter, Lauren, "testified credibly at the hearing. Each declared their unbridled affection for the Hamptons and stated that it was their home prior to, during, and after the years at issue."
The Cookes did not consider the New York City apartment their home. When asked to compare his feelings for New York City with those for the Hamptons, Gordon described the city apartment as “utilitarian,” whereas “the Hamptons was for life and remembrance.” Lauren [daughter] candidly testified that she did not think of the city apartment as her home, but stated that she “had a specific purpose for being in New York City” and likened her time there to being at a job.
While the standard is subjective, the courts and the Tax Appeals Tribunal have consistently looked to certain objective criteria to determine whether a taxpayer’s general habits of living demonstrate a change of domicile.
In this case, the ALJ stated: Examination of Gordon Cooke's “general habit of life” during the years prior to and including 2002 through 2004 further substantiated the claimed domicile change. In essence, Gordon was an "extremely busy executive who traveled extensively and returned to the Hamptons whenever he did not have somewhere he had to be."
Based on the ALJ’s analysis of the case, it is clear that the family factor, which the state Nonresident Audit Guidelines elevated in importance in 2012, played a significant part in this decision. This decision also showed the importance of not only school-aged children, but of the role of the children as adults, and how that is part of one’s lifestyle.
It may be difficult to make a clear and convincing case for a change of domicile to a home used primarily on weekends, holidays and vacations. Nevertheless, Cooke shows it can be done when residents can prove that the new claimed domicile is the focus of life with regard to family friends, leisure activities—lifestyle—and that the residents intend that home to be a permanent home, with the range of sentiment, feeling and permanent association with it.

For a free phone consultation on this or any other tax issue or concern please call
Brian Gordon, CPA at (516) 510-6041 or email at bgord520@gmail.com.

Brian Gordon, CPA, is a state and local tax consultant in private practice. Previously, he was with the NYSDTF for more than 30 years, most recently as a District Audit Manager in Manhattan and Brooklyn. He is a member of the NYSSCPA New York, Multistate & Local Taxation Committee and writes and speaks on various tax issues. He can be reached at bgord520@gmail.com or (516-510-6041).   

 

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