Following the recent ruling in Gaied by the highest state court in New York, the Department of Taxation and Finance has issued revised Nonresident Audit Guidelines, dated June 2014.  The guidelines incorporate the NYS Court of Appeals’ determination in Gaied that a taxpayer must have a residential relationship to a dwelling for it to constitute “maintaining a permanent place of abode” for residency purposes.

The law provides that a taxpayer is a statutory resident of New York, and therefore subject to tax on his worldwide income, if he spends more than 183 days of the year in the state, and maintains a permanent place of abode in the state for substantially all of the year.

The guidelines provide concrete examples of when a taxpayer might or might not have the requisite relationship to a property such that it would be considered his permanent place of abode for statutory residency purposes. Quoting Gaied, the guidelines emphasize that “there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.” For more details on the law related to residency, see here.

Not long ago, the 2012 Nonresident Audit Guidelines established a set of factors to evaluate a taxpayer’s relationship to a dwelling. The factors included, among others, whether the taxpayer had an ownership interest in the property; whether he had unfettered access, and whether he kept personal items at the dwelling.  The 2014 guidelines similarly discuss the factors, and note that these address the Gaied concerns regarding a residential relationship.

Property Primarily Used By Others

The revised guidelines expand on the idea that mere ownership is not enough.  A property owned by the taxpayer may be used “exclusively” or “primarily” by others, and not be considered a permanent place of abode for the taxpayer. One example describes a taxpayer who purchases an apartment for his elderly mother, pays the expenses, has a key, and occasionally sleeps on the couch.  The guidelines state:

In the Department’s view, [this taxpayer] does not have a residential interest in the property and it will therefore not constitute a PPA [permanent place of abode]. Although a number of the factors … are present that would indicate it is a PPA- ownership, maintenance, unfettered access, actual use- the overriding point is that the residence is used primarily by the mother and the taxpayer’s occasional use should not change its character. Moreover, [the taxpayer] does not have his own accommodations and the apartment is not located in the vicinity of his regular employment.

With this clarification, it should be easier for a taxpayer to assist family members and provide accommodations for them, without the taxpayer being subject to taxation as a statutory resident. It should be noted that in residency audits, the burden of proof generally is on the taxpayer to show his position by clear and convincing evidence; and presumably the taxpayer will bear the burden of proving his relationship – or rather, his lack of a residential relationship  – to the dwelling.

House For Sale: Is It a Permanent Place of Abode?

The new guidelines also discuss the murky situation presented when a taxpayer moves to another state, and puts his New York house on the market.  Is the New York house still his permanent place of abode for statutory residency purposes?

In these circumstances, if the taxpayer can show that he moved the contents of his house to his new domicile, he would no longer have a residential relationship to the New York house.  Sensibly, the revised guidelines note that it would not be “reasonable to expect the taxpayer to use a vacant home despite unfettered access.”

Beware of leaving the home furnished. If the taxpayer has unfettered access to the place he lived in, with his belongings still there, he would probably still have a residential interest in the property. The guidelines emphasize that this assumes that no one else is using it as a residence.

As these two examples show, moving to Florida and hanging a “For Sale” sign on the New York house may not be enough to avoid taxation as a statutory resident. Once it is determined that the taxpayers have a permanent place of abode in New York, even if it is on the market, they will be statutory residents if they spend more than 183 days in the state in the taxable year. Taxpayers should be aware that, in general, they may need to keep track of their days in New York until the place is sold. For a discussion of recent cases regarding daycount,

Conclusion

The updated publication continues to address numerous issues related to residency audits. In this post-Gaied environment, the 2014 guidelines should provide useful guidance for practitioners and taxpayers in preparing for and handling an income tax residency audit.

Submitted by Tenenbaum Law on Tue, 07/22/2014 – 23:12