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May 1989

Current cases - NY State change of domicile.

by Horowitz, Barry H.

    Abstract- Recent court cases in New York State could create problems for accountants who are advising their clients on New York State residence tax requirements. A person is officially a resident of New York if they maintain a permanent residence in New York and spend more than 30 days a year in the state, or if they spend more than 183 days a year in the state without maintaining a permanent residence. The recent court cases of the Matter of the Petition of Jack and Frances Silverman, and the Matter of the Petition of Sol and Lillian Feldman found that the taxpayers were legal residents of New York, despite the fact that they owned year-round residences in the state of Florida and they spent less than 183 days in New York State. The decisions were issued out of New York's Division of Tax Appeals and they are not considered precedent.

It has been commonplace for NY residents to move and relocate to Florida. Over the years, NY has contested many cases involving change of residence. For tax purposes, an individual will be deemed a resident if either one of the following tests are met:

1. The individual is a domiciliary who maintains a permanent place of abode in NY and is present in NY more than 30 days; or

2. The person is not a domiciliary who maintains a permanent place of abode but who spends more than 183 days in the state.

Two terms must be defined when discussing residency. The first term is domicile. Domicile is the place which an individual intends to be his permanent home--the place to which he intends to return whenever he may be away. A person can have only one domicile regardless of how many residences he has. The other term is permanent place of abode. A permanent place of abode is a dwelling suitable for year-round use containing ordinary dwelling facilities for cooking, bathing, etc., that the taxpayer maintains, but need not own. For instance, a hotel room could be deemed a permanent place of abode.

In determining whether an individual has changed his residence, certain factors are considered. The following are a sampling of these:

1. The nature of the new residence;

2. The sale or retention of the NY residence;

3. The maintenance of NY bank accounts;

4. State of voter registration;

5. State of driver's license and automobile registration;

6. Business interests and investments;

7. Execution of a will in the new locale; and

8. Religious and social affiliations.

Two recent cases have dealt with the change of residence issue. Although the cases were decided by administrative law judges in NY's Division of Tax Appeals unit and are not considered precedent in that division or any NY State judicial proceeding, the facts of the cases and the results shed light on this issue.

The first case, in the Matter of the Petition of Jack and Frances Silverman (deceased), the taxpayers were held to be residents of NY. Prior to 1978, the Silvermans were domiciliaries and residents of NY. They owned a home in Woodmere, NY and leased an apartment in Palm Beach, Florida.

Jack Silverman had been the founder and president of a company which has its principal place of business in NY. Silverman was Chairman of the Board, but he was not active in the day-to-day activities of the company. In 1978, the company's stock was acquired by another corporation and Silverman was retained as a consultant. He was provided with a small office to be used when he was in NY and worked mainly out of his apartment when in Florida. As a consultant, his compensation was substantially lower than when he was an officer of the company.

The Silvermans spent large sums of money to decorate their Florida apartment. In addition, the Silvermans moved their most valuable possessions to Florida. They did not move their furniture from NY since it was not needed. The Florida residence was also ready for use year- round.

In 1975, three years prior to the taxpayers claimed change of residence, the taxpayers offered their Woodmere house for sale. The record was not clear with respect to the period of time the house was offered for sale or to the degree of effort made to sell the house. The house was finally sold in 1983.

The Silvermans belonged to social and religious organizations in Florida and NY. In addition, they owned automobiles and had safety deposit boxes in both jurisdictions. They also voted in Florida and were issued Florida driver's licenses.

In 1981, the taxpayers executed their wills. Their wills provided that although the taxpayers were Florida domiciliaries, the wills would be probated in the Surrogate's Court in NY and the laws of NY should govern.

In four of the five years under audit, the Silvermans were in NY for less than 183 days.

The administrative law judge in the case held that the Silvermans were residents for the years under audit. The judge stated that there must be an actual change of residence coupled with an intention to abandon the former domicile and to acquire another. Since the taxpayers maintained many ties to NY it was concluded that the Silvermans had no real intention to abandon NY as their domicile.

The other case, in the Matter of the Petition of Sol and Lillian Feldman, was also decided against the taxpayers. The facts in this case were quite similar to those of the Silverman's case.

Sol Feldman was a physician practicing in Brooklyn, New York. In 1974, the taxpayers, after renting an apartment in Florida for a short period, purchased a condominium in the state. However, they continued to own their two-family home in NY, which was now used by their daughter as her principal residence. In 1980, the taxpayers executed a Declaration of Domicile in Florida.

The taxpayers also owned a summer home in upstate NY. During the years under audit the Feldmans would stay in NY from May to October. Most of their time was spent at the summer home. Dr. Feldman would practice medicine in his office, which was situated on the first floor of his Brooklyn home, for a couple of days per week. He would stay in the office, which had a bedroom, whenever he returned.

The judge, in his decision, stated that the action of petitioners, examined as a whole, did not indicate an intention to make a fixed and permanent home in Florida. Although it was clearly shown that the taxpayers spent less than 183 days in NY, the retention of the taxpayers' Brooklyn home and their intention not to sell it, was evidence that they did not intend to change their domicile. It is interesting to note that the summer home in upstate NY, where the taxpayers spent the majority of their time when in NY was not considered a permanent place of abode because it was suitable and used only for vacations.

In both cases, the taxpayers did not dispose of their NY residences. It appears, from the decisions, that as long as a taxpayer maintains a permanent place of abode and spends more than 30 days in NY, a taxpayer will be deemed a resident. Another factor which must be examined when a taxpayer wishes to change his domicile is his continuing ties o NY. As long as some ties to NY remain, a doubt will be raised as to the intent of the change of domicile.

The decisions appear unsound. In each case, the taxpayers had a permanent residence in Florida and met the criteria to establish a bona fide domicile in that state. Florida has as much right as NY to claim that both couples are domiciliaries of the state. This leads to the question of whether taxpayers can be deemed domiciliaries of two states. In addition, the retention of a NY residence, as well as maintaining some ties, should not taint a taxpayer's change of domicile. However, until the courts provide a definitive answer to the change of domicile question, it will be difficult to advise clients in this area.

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