“This article originally appeared in the November 2013 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.”
"Domicile" is the New York state tax issue that never seems to go away. Although this year did not see as much activity as in past years, there was one case with wide implications for the many New Yorkers who wish to spend the winter months in Florida or other warm places. A couple with a long tradition of spending significant time in Florida, who thought they moved from New York City to Boca Raton, learned a painful lesson about the Empire State's strict residency rules, and the need to have careful documentation when arguing a case before the Division of Tax Appeals.
The case in question was in The Matter of Donald and Rose Lieberman, DTA No. 824101, decided by Administrative Law Judge Joseph W. Pinto Jr. and involving the years 2004 and 2005. The issues in the case involved domicile and statutory residence, as well as assessed penalties. The Lieberman case goes to the heart of New York's domicile laws and rules, and some background on these can highlight the significance of this particular ruling. Domicile is a complex issue that involves intention and sentiment. In general, it is the place that individuals intend to be their permanent home. There is a range of sentiment, feeling and permanent association established with the home. A domicile once established continues until the individual in question moves to a new location with the bona fide intention of making a fixed and permanent home there. The burden to prove a change in domicile is on the person claiming the change. In this case, the Liebermans claimed that they changed their domicile from New York City to Florida in February 2004; therefore they have the burden to prove by clear and convincing evidence that a change was made.
"Statutory residence" is more easily defined. If you have unfettered use of a permanent place of abode in New York (a residence), and you are present in New York for more than 183 days (any part of a day equals a day) then you are a resident for tax purposes.
New York state audit guidelines direct the auditors to examine five primary factors to determine which home or location is the primary home – the domicile. These factors try to mirror the issues generally considered by judges in their evaluation of cases. There are also other factors; however, most cases are decided based on the primary factors.
The primary factors are:
- Home: Comparison of the homes
- Time: Comparison of time spent at each residence
- Business: Comparison of business activity in each location
- Near and Dear: At which location are valuable possessions or personal keepsakes?
- Family: At which location are close family ties?
How did the Liebermans fare when their situation was matched against the primary factors?
Home Factor
In the first year of audit – 2004 – Mr. Lieberman was 78 and Mrs. Lieberman was 80. They owned their home in Queens, N.Y. since 1971. Petitioners began traveling to Florida in the early 1980s to escape the cold. They purchased a house in Boca Raton, Fla., in January 1990. The Liebermans became members of a social club as a requirement of ownership of their home. In the early 2000s the Liebermans sold this home and purchased another home in Boca Raton. There was no club membership requirement with this home.
In analyzing the home factor, what is missing in this case is the petitioners' detailed description of the homes. We have no choice but to conclude that one home was not more significant than another. To make a convincing claim of domicile change—that is, to show there was a real move from New York to Florida—the petitioners should explain their emotional attachment to this new home and community. There was no mention of social activity other than a club which they were required to join as part of ownership of a home they bought years ago, before moving to a different home. There was no mention of social activity or hobbies with the new home. What took place during 2004 for them to claim a change in domicile? There was no change mentioned in the case.
Time Factor
The Liebermans claimed that they spent approximately 5 months each year in New York; however, this was not proven. For the sake of this discussion we'll assume that the time spent was approximately equal in New York and Florida. This is not convincing for a change of domicile.
Near and Dear Items
Nothing mentioned.
Family Ties
During the audit period, Mr. Lieberman had three children, a son and two daughters. The son lived in Florida during the years in issue and the daughters in Connecticut. Mrs. Lieberman had one child who lived in Arizona. Did the Liebermans move to Florida to be near their son? They didn’t mention that.
Business Ties
Mr. Lieberman invested in and managed residential real estate in New York for many years. In 2004, 2005 and 2006 he downsized his real estate business, but he continued to operate and manage the business with the help of an employee in New York who was in constant contact with him by telephone while he was in Florida. Mr. Lieberman also spoke with his tenants by telephone. When he returned to New York, he would check on his investment properties maintaining personal contact with his tenants. Mr. Lieberman expressed his desire to remember “who I am and what I am.” He believed he accomplished this by continuing to negotiate leases, handling renewals and creating new tenancies, all of which were “done through” him, providing him personal contact with his clients, enjoyment and something to do.
Only on this issue of "business ties" do we find out who Mr. Lieberman is, per his own quote “who I am and what I am.” This is what domicile is all about. It is the first time we see any feelings of sentiment, and permanent association; it is with his New York real estate business. This is his habit of life. There was no business activity in Florida. If you were to describe Mr. Lieberman, you might describe him as a New York real estate manager who winters in Florida – a snowbird. That does not add up to a clear and convincing change of domicile from New York to Florida.
According to Judge Pinto: “What is glaringly missing, other than the purchase of houses in Boca Raton, was any evidence of an intent to change their domicile to Florida. There was no mention of a daily routine in Florida, much less a social life. There was not a range of sentiment, feeling and permanent association established with Florida.” Since the petitioners did not have adequate documentation for their time spent in Florida or New York, they were also found to qualify as New York statutory residents. Petitioners were also found to be subject to negligence penalties.
Each domicile case has its own nuances. There are no two cases with identical facts. It is necessary to understand the nuances and the relevance of each bit of information, and to be thoroughly prepared before addressing a New York residency audit.
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 where he was involved in many residency audits. 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 516-510-6041 or bgord520@gmail.com. He posts a monthly blog at http://gordonstate.blogspot.com.
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