New York State Residency Audits Are Getting Tougher

November 18, 2010

Given the recent and rapid expansion of New York's residency audit program and new guidelines for audits, it is important for non-residents, including former residents of New York state, to keep current on how this may affect them. The audit guidelines, updated in 2009 for the first time in 12 years, highlight the department's increasingly assertive approach to residency audits.

Under the new guidelines, auditors are urged to take advantage of electronic media and sources such as Lexis to research the taxpayer and connections with New York, particularly for business activities. In addition, auditors are now going out in the field to make observations including interviews of doormen and postal carriers, visits to residences in and out of New York, as well as taking pictures of the residences.

They are also looking at the type of residence maintained. The guidelines mention the importance of both the amount of time spent in New York compared with other locations as well as how the individual divides his time between New York and the claimed domicile in the context of his lifestyle. While an audit might focus on where a New York City commuter spends his weekends, the inquiry might be less instructive for a Florida retiree with a home in New York.

A taxpayer with a New York apartment can no longer claim to be a nonresident on the basis that he/she is in New York for a temporary stay to accomplish a particular purpose. And even for the years prior to 2008 when the temporary stay rules still applied, the examples in the updated guidelines make clear that the audit division will take a hard line on those cases.

Importantly, the guidelines note that even though the regulations treat 'any part of a calendar day' as a New York day, and thus one second over the state line could therefore constitute a day, 'no audit is ever expected to be based on such a minimal amount of time spent in New York.' The guidelines also expand the discussion of time spent in New York for medical treatment. Confinement to any type of medical institution does not count for statutory residency; whereas outpatient care and time spent visiting a hospitalized spouse in New York will count as days spent in the state.

The most significant change was to elevate the 'family factor' to one of the primary factors to examine during an audit. Previously, the audit guidelines stated that auditors should focus on the four primary factors (the home, business involvement, time, and 'near and dear'); family ties would be looked at only if the four primary factors were inconclusive. The new guidelines now refer to the 'five primary factors,' including family connections. Although the location of the individual's spouse or partner and minor children will generally be the focus of the audit, the new guidelines do not rule out that the relationship with grandchildren or aging parents would be an appropriate avenue of inquiry for an audit.
In an effort to establish the intent of the taxpayer, the location of where the taxpayer keeps 'near and dear' items may be important in determining residency. For instance where does the taxpayer keep items of significant sentimental value such as family heirlooms, works of art, collections of books, stamps and coins, and those personal items which enhance the quality of lifestyle. In addition, the auditor may look at where important financial and bank statements, bills, and other importance correspondence are received.

It appears that the auditors are taking a full picture view in determining not only physical location but also intent. Taxpayers need to be very careful about record keeping and reporting to maintain their tax status. For more information contact your Perelson Weiner partner.

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