March 1, 2011

 

 

New York Wants You!

 

            You may have heard that there is a financial crisis, that the world, our federal government, and most of the states (excluding North Dakota) need funds. President Obama’s new budget calls for 5100 more Internal Revenue Service Agents and therefore opts to go in the direction of increasing tax audits in order to raise revenue. New York State and New York City opt for another direction; they want more people to be New York residents and therefore, raising the population from which people can be taxed.

 

            New York State tax authorities have identified a potentially lucrative source of income: out of state residents who purchase New York homes for their relatives. At the urging of New York State, the New York Tax Appeals Tribunal has agreed to rehear a case involving a New Jersey resident who worked in Staten Island and purchased a Staten Island home for his parents to live in and he stayed there occasionally. If New York prevails in this case, it raises the possibility that other out of state residents who work in New York and allow family members to live in their New York homes will pay taxes as if they were New York residents (i.e. taxes on their non New York source income and passive income). It should be noted, that in this case, the owner of the home did not have a bed at the home, did not keep any personal effects there, and stayed only when his father’s poor health demanded it.

 

            It will be the second high profile case the tribunal has ruled on in recent months concerning out of state residents. It recently ruled that a Connecticut resident who worked in New York City and owned a rarely used summer house in the Hamptons owed $1,000,000 in additional taxes because the individual was physically present in New York State more than 183 days a year and had a permanent place of abode (even if he only used it 4 days in the year).

 

            In a recent case that New York City lost because they could only prove that the husband spent 182 days in New York City and he had a pied a terre in Manhattan, New York City not only checked his diary and credit card receipts as well as took testimony from business associates and friends but also tracked the telephone calls of his family. In fact, because of the tracking of telephone calls, he was able to prove that his wife was in New York City for a gala event and called him at his Long Island home so he was able to prove he was not in New York City that day. That one day saved him $20,000,000 in New York City taxes.

 

            There are many tax planning lessons to be learned from these cases, not the least of which are individuals who might require parents or adult children to sign formal leases and act more like tenants than family members. Maybe, children who let their elderly parents stay at a New York home should not have keys and that the parents should pay all the bills. Wall Street Journal 3/8/11 p. A21.

 

            As always, if you have any questions about these or any other matters, do not hesitate to call us.

            Remember, We’re Here For You!