Magazine article The CPA Journal

New York Guidelines on Domicile

Magazine article The CPA Journal

New York Guidelines on Domicile

Article excerpt

The New York Department of Taxation and Finance earlier this year announced Field Audit Guidelines on Personal Income Tax Nonresident Audits. A feature story which appeared in The New York Times reported that James w. Wetzler, the state's tax commissioner, "issued guidelines aimed at reining in overly zealous state tax agents who try to prove that people who say they live elsewhere are actually state residents--at least for tax purposes."

Accountants and tax lawyers involved in New York/Florida domicile issues reviewed the guidelines to determine the new elements of the field audit. The director of the state's Personal Income Tax Audit acknowledged that the guidelines are really not new but, for the first time, are organized into one comprehensive document. If the guidelines are to resolve many of the controversies and problems of the past, the conduct of the audits will require fundamental change to reflect the stated purpose of New York's tax department and a better understanding by agents of the way wealthy taxpayers view their residences.

An analysis of the guidelines and audit practices reveals many discrepancies. The burden has been put on the taxpayer to demonstrate not how much of his lifestyle is transferred to Florida but how much of his business, personal, and social connections are still left in New York. In the discussion below, the guidelines are in italics followed by comments on how domicile claims have been examined by the state's auditors and how they can be changed in practice to meet the guidelines.


The non-resident field audit program is not designed "to place a heavy burden on taxpayers to prove domicile or to verify their physical location on every day spent during a particular year." Taxpayers are spending an inordinate amount of time to prepare for exams. The amount of money spent and accountant and attorney fees is significant and at times disproportionate to the amount of tax involved. It can take one to two years for the audit and over five years to go through the appeals process.


The non-resident audit program is not designed to "discourage visitors and former New York residents from returning to New York to visit family, shopping excursions, and otherwise take actions which bolster the New York State economy." Many CPAs have found auditors seriously questioning taxpayers about retaining memberships in a place of worship. In one case, the taxpayer was a founding member of the religious institution but only attended services twice a year on the high holidays. The auditor's protest resulted in the resignation of the taxpayer's membership.

Auditors have also questioned why taxpayers continue to use their previous CPAs and doctors in New York if they have moved to another state. While these visits should count as days in and out of New York, they should not be considered as evidence for or against New York domicile since these aid the New York economy.


"Individuals do not have to limit all their contacts with New York to be determined to be non-residents." While the guidelines indicate that New York should encourage former New York domiciliaries to return for visits, shopping trips, etc., it is the experience of many CPAs that agents can harass taxpayers regarding any connection, no matter how slight, to New York.

For example, if the taxpayer retains his New York place of abode, visits his children or grandchildren, and keeps one bank account or brokerage account in New York, the agent contends the taxpayer is still domiciled in New York although he has 30 or 40 different connections to Florida.


"Auditors should not request documentation of secondary or tertiary factors without having first established a basis using primary factors." Auditors automatically request all documentation to develop a case. They seemingly presume in advance that taxpayers have not changed their domicile and abandoned New York. …

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