New York couple challenges their tax domicile status

New York City residents may already be making beach plans for the Fourth of July holiday. Long Island boasts a number of popular destinations, including the luxurious Hamptons. Such beach communities are so desirable that many New Yorkers may secretly wish they could live there year round, perhaps keeping only an apartment in New York City.

Remarkably, one couple seems to have managed that feat — without potentially adverse tax consequences. The couple was recently the subject of a tax audit by the New York Division of Tax Appeals. City officials believed the couple should have been liable for the tax implication of having a permanent residence in the city. However, the couple maintained that their permanent resident was actually in the Hamptons.

A taxpayer seeking to prove domicile to tax officials must typically present a number of factors. The length of time spent at a location is one such factor, of course. However, it is not the only one, as the taxpayers in this case spent roughly divided their time between their Hampton address and their New York City apartment.

Here, the tax court considered additional factors. The couple had moved much of their furniture and personal property to their Hamptons home. In addition, their daughter testified that she and her parents kept a very busy schedule at the Hamptons and considered it their permanent family home.

Although it is possible to prevail in tax court, many taxpayers might also benefit from administrative resolutions with tax authorities, such as offers in compromise, where the tax authority agrees to accept less than the alleged full amount of tax due. An attorney can provide assistance to a taxpayer during such administrative negotiations, while possibly saving the taxpayer the expense of going to court.

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