It is no secret that New York maintains one of the most aggressive residency audit programs in the country. By some accounts, the New York State Department of Taxation and Finance generates more than $300 million per year in personal income tax revenue to a large extent by challenging the residency status of taxpayers who claim to have made their homes in other states. The largely subjective nature of the inquiry, combined with a high burden of proof for the taxpayer and frequent lack of available records to meet that burden of proof, feeds the aggressiveness of the department’s efforts to collect revenue. CPAs should be aware of the department's history and policies in this area.

In most residency audits, the department will assert that taxpayers continue to owe New York resident tax on 100 percent of their worldwide income (including investment income) because the taxpayers have failed to prove a change of domicile to another state. This line of attack questions the taxpayers' subjective intent to make the asserted new domicile their “permanent home.” Additionally, the department frequently falls back on New York’s statutory residency provisions, which allow the department to assert resident taxation if the taxpayer: (i) maintained a permanent place of abode in the New York for substantially all of the tax year and (ii) spent more than 183 days in the jurisdiction. (See Matter of Newcomb, 192 N.Y. 238; see also N.Y. Tax Law § 605(b)).

Read the full article, "Defending New York Residency Audits that Target Capital Gains" at nysscpa.org/taxstringer/main.htm.