In a potentially significant decision involving changes of domicile for personal income tax purposes, a New York State Administrative Law Judge has concluded that a husband successfully established that he changed his domicile from New York to London even though his family never permanently relocated with him. Matter of Irenee D. May, DTA No. 825173 (N.Y.S. Div. of Tax App., Jan. 8, 2015). In reaching his decision, the ALJ rejected the Department’s claim that proving a change to a foreign domicile requires a greater showing than proving a change of domicile to anther state.
Facts. As in most domicile cases, the decision contains a very detailed recitation of the facts, which will only be summarized here. In 1992, Mr. May and his wife moved to New York, purchasing a home in Harrison, New York, where they raised their son and daughter. The following year, he began working for JP Morgan in New York City, managing and developing its hedge fund business.
In late 2004, Mr. May was terminated by JP Morgan (by then known as JPMorgan Chase), effective January 2005.
Within a few months, he obtained a position as Managing Director at the Royal Bank of Scotland in London, England. Mr. May and his wife made plans to find a home in London and to find a suitable school for their schoolage children. He (and his wife and their nanny) obtained five-year work permit visas, after which he could apply for permanent residency in the UK.
In September 2005, Mr. May moved to London and began work at Royal Bank of Scotland under an “at will” employment contract. He and his wife found a large rental home in London, initially for a one-year term but with the goal of eventually purchasing a home there. Due to problems in finding a suitable school in London for their son, his wife and children soon returned to their Harrison, New York home. Their daughter did live with Mr. May in London for several months and attended school there, but by the Spring of 2006, she returned to Harrison to live with her mother and brother.
Mr. May did not list their Harrison home for sale due to the uncertainties of the timing of his family’s move to London. By late 2006, the delay in his family’s move caused him to move to a smaller rental home in London, again without his family. During the years 2006 and 2007, Mr. May’s professional life flourished in London, as did his social life, which was tied to his work.
At the same time, Mr. May’s marriage was deteriorating, with Mrs. May remaining in Harrison with their two children. In October 2007, Mrs. May served her husband with divorce papers. Claiming abandonment, the divorce papers recited that Mr. May “repeatedly stated his intention not to return to New York and reside with [his family there].” The following month, Mrs. May obtained sole and exclusive use of their Harrison home by stipulation and eventual court decree. Mr. May remained in London throughout the years 2006 through 2008. Their divorce was finalized in 2011.
For the years 2006, 2007, and 2008, Mr. May filed New York State income tax returns separate from his wife as a nonresident. He maintained that he had changed his domicile to London. The Department claimed that Mr. May remained a New York domiciliary, assessing income tax against him as a resident, plus interest and penalties.
Decision. The ALJ held that Mr. May had established a change in domicile to London, considering the criteria previously employed by the Tribunal, which involved: (i) retention of the place of abode in the former domicile; (ii) location of business activity; (iii) family ties; (iv) social and community ties; and (v) formal declarations of domicile. The ALJ noted that both Mr. May and his now-former wife testified credibly and unequivocally at the hearing regarding his intention to make London his and his family’s new and permanent home, testimony that the ALJ considered “extremely potent evidence” of Mr. May’s change in domicile.
Under the income tax regulations and New York case law, an individual’s domicile continues until a new one is established, and the party alleging the change — whether the taxpayer or the Department — bears the burden of proving a change of domicile by clear and convincing evidence. 20 NYCRR 105.20(b); Matter of Bodfish v. Gallman, 50 A.D. 2d 457 (1976).
The ALJ distinguished decisions involving taxpayers who accepted temporary work assignments outside the country, where claimed changes in domicile were rejected. The ALJ also emphasized that Mr. May spent far more time in London than in New York: between 236 and 280 days in London each year, but only between 25 and 40 days in New York.
The Department claimed that 20 NYCRR 105.20(d) (3), which provides that “a United States citizen will not ordinarily be deemed to have changed such citizen’s domicile by going to a foreign country unless it is clearly shown that such citizen intends to remain there permanently,” creates a “stronger than general” regulatory presumption against a change in domicile. The ALJ rejected the Department’s assertion that establishing a change to a foreign domicile requires a greater showing than establishing a change of domicile to another state. According to the ALJ, the regulation cited by the Department “simply provides the same standard as required for those claiming interstate, and not international changes of domicile.”
The decision, although not binding precedent and subject to appeal, is noteworthy in its rejection of the Department’s frequently advanced position that establishing a change of domicile to a foreign country is more difficult than to another state. The Department’s position may stem from a misinterpretation of case law involving individuals on temporary work assignments outside the United States who unsuccessfully claimed to have changed their domiciles from New York. The decisions rejecting domicile changes under those circumstances were based on the temporary nature of the individual’s presence outside the country, however, not merely because the individual was claiming a foreign domicile.