New York State has recently reviewed the issue of residency, this time looking at a change of domicile to a foreign country. Once again, as in the Taylor case, a business executive has moved to London to work in the financial industry. Unlike Taylor, however, the Administrative Law Judge held that Irenee D. May was not a NYS resident during the years at issue, and that he was domiciled in London.
NYS tax law provides two tests for determining when an individual is a NYS resident. An individual is a NYS resident when he is (1) domiciled in the State; or (2) not domiciled in the State but maintains a permanent place of abode in the State and spends more than 183 days in the State during the taxable year. A NYS resident is taxable on his worldwide income.
The key element of changing domicile is whether the taxpayer has strengthened ties to his new place and loosened his ties to New York. Domicile has been defined as the place that the taxpayer considers his home, that is, the place he intends to return to whenever absent. Typically, the taxpayer has the burden to prove that the new place is his home.
Irenee May worked in New York for many years. When his employment at JP Morgan Chase was terminated, he welcomed the opportunity to work for the Royal Bank of Scotland, with his employment based in London. In 2005, he and his wife leased a large property in London, near his work and potential schools for their two children. Visas were obtained for the family and a nanny. While Mr. May settled into London life and thrived professionally, Mrs. May and the children did not do the same. For the most part, the children remained enrolled in their private schools in Connecticut. Mrs. May returned to the New York house and she eventually decided not to live in London with her husband. In 2007, Mrs. May filed for divorce. In 2008 Mr. May came back to live in the USA, in order to be near his children while divorce proceedings were ongoing.
The Department’s position was that Mr. May had not changed his domicile from New York. During the audit years of 2006, 2007 and 2008, he still had strong ties to New York. His family lived in New York, and he maintained the house in New York where they lived. Other facts in the record showed that he had a New York driver’s license throughout the years at issue and a vehicle registered in New York. His 2006 federal tax return used the New York address, and his UK tax returns indicated he was not domiciled in the UK.
The Department emphasized a NYS regulation which provides that when a citizen moves abroad, he must show that he intends to remain there permanently. The Department argued that this regulation created a “stronger than general” presumption. The ALJ disagreed, holding that the standard is the same whether a taxpayer moves to another country or to another state.
The ALJ determined that Mr. May met the standard by showing his intent to move to London for an indefinite period. Mr. May credibly testified of his discontent in New York, his excitement in moving to England, and his lifestyle and ties to London. Particularly compelling was Mrs. May’s testimony that she decided to divorce Mr. May because he refused to leave London, despite his family’s difficulties in making the transition overseas. While minor points weighed against the move, the evidence taken as a whole was persuasive that Mr. May truly changed his domicile.
Auditors often look to where minor children attend school as a powerful indicator of domicile. In this case, however, Mr. May was held to have changed his domicile to London even though his children did not change schools. The record showed that there were several unsuccessful efforts to enroll the children in London schools.
The determinations of an ALJ may not be relied on as legal precedent. Nevertheless, it will be interesting to see whether, in light of the ruling in favor of Mr. May, Department policy will be modified, so that auditors apply the same standards for taxpayers moving overseas as those moving out-of-state.
Submitted by Tenenbaum Law on Mon, 02/23/2015 – 15:03