New York State Adds Non-Resident Audit Guidelines

By Horowitz, Larry | The CPA Journal, April 1994 | Go to article overview

New York State Adds Non-Resident Audit Guidelines


Horowitz, Larry, The CPA Journal


Taxpayers filing nonresident New York State personal income tax returns have been increasingly exposed to tax examinations.

In February 1933, the New York State Department of Taxation and Finance issued a 48-page Technical and Procedural Guideline addressing issues raised during nonresident audits. The guidelines set parameters to be followed by tax examiners in performing audits.

Generally, a taxpayer may be deemed a resident of New York under one of the following two tests:

1. The taxpayer is domiciled in New York State. However, the taxpayer is not a resident if he or she maintains no permanent place of abode in New York, maintains one outside the state, and spends no more than 30 days in New York State.

2. The taxpayer is not domiciled in New York State, but maintains a permanent place of abode in New York and spends more than 183 days of the taxable year in New York State.

Residency audits focus on the domicile issue and the statutory residency 183-day count. Domicile is deemed to be the place where the individual maintains his or her true, fixed permanent home. The permanent home is defined as the home where the individual intends to return whenever absent. A person's domicile continues until the taxpayer abandons the old and moves to a new location with the intention and motive of making the new home their fixed and permanent home. The burden of proving a change of domicile is on the taxpayer.

The 183-day test is a factual test. The taxpayer must document his or her days spent outside New York. The best proof is through documentation such as credit cards, hotel bills, passports, and a contemporaneous diary kept by the taxpayer.

The new audit guidelines concentrate on establishing procedure to be followed by auditors in examining these issues. For domicile issues, the guidelines set forth in the introduction state:

Individuals do not have to eliminate all of their contacts with New York to be determined to be nonresidents. We should encourage former New York domiciliaries to return to New York for visits, shopping, trips, etc. We should let nonresident taxpayers know that if they happen to keep a bank account open in New York or seek some professional advice in New York, they will not be hounded by an auditor or assumed to be a New York resident. Auditors can reinforce this position with taxpayers and practitioners by focusing first on the primary factors as discussed in this guideline. Auditors should not request documentation of secondary or tertiary factors unless they have first established a basis using primary factors.

The guidelines list the following primary factors that auditors must examine to determine a change of domicile. The list is not intended to be all-inclusive.

Historical Home. Factors are-

1. The continued use and maintenance of the historical home compared to the nature and use patterns of a newly acquired residence.

2. Size and value of the newly acquired or newly claimed domicile.

3. Other aspects of the historical home including the use of domestic help, chauffeurs, etc. and a sudden change in their use and location.

Business Connections. This area examines a taxpayer's pattern of work or employment. The key is whether a taxpayer maintains an active participation in a trade, business, occupation, or profession in New York or holds a substantial investment in and management of New York closely held partnerships or corporations.

Items "Near and Dear" to the Taxpayer. Included are the location of items to which the taxpayer attaches significant sentimental value such as family heirlooms, art, books, stamp or coin collections, and other personal items that enhance the quality of life. The agent will often examine insurance policies to determine the location of these items based on insurance coverage.

Analysis of Taxpayer's Time During the Year. Even in situations where taxpayers spend less than 183 days in New York State, the analysis of a diary, log, or calendar maintained by the taxpayer can be utilized in supporting domicile based on the nature of time spent in the state. …

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