by Brian Gordon, CPA
This article originally appeared in the May 2019 TaxStringer and is reprinted with permission from the New York State Society of Certified Public Accountants.
The following is an analysis of a case involving petitioner Thomas McManus, which was decided by Winifred M. Maloney, Administrative Law Judge (ALJ) on February 7, 2019. See McManus Case. Petitioner represented himself at the hearing. This is a residency case involving the issue of domicile for the year 2009.
A person can be deemed a resident of New York State in either one of two ways:
1. You can be domiciled in New York.
You are domiciled in New York if it is your primary residence—often referred to as your fixed and permanent home. You can have more than one residence, but you can only have one domicile. Your claimed domicile must be the focus of your life. Your intention to make a residence your domicile is important, but your intention must be true and honest.
New York State, auditors will look at several factors in order to determine which residence is your true domicile. This may include comparing the size and value of the homes, time spent at each home, business connections to each location, family connections, near and dear possessions kept at each home, as well as lifestyle and other factors.
2. You can be a Statutory Resident of New York.
Unlike domicile, statutory residency is based on facts rather than analysis.
a. Do you have a qualifying residence in New York State? If yes, see b.
b. During the year in question, are you present in New York State for more than 183 days?
For the purpose of this day count, any part of a day (even an hour or less) is counted as a day. If you come into New York at 11:00 pm on a Saturday, and leave two hours later at 1:00 am (Sunday), that is counted as two days. There is no requirement to sleep at the residence.
During the year in question, 2009, Mr. McManus had three residences.
1. Ridgefield, Connecticut
2. Bronxville, New York
3. St. Louis, Missouri
Mr. McManus claimed that his residence in Ridgefield, Connecticut became his domicile in 2009. The New York State Tax Department argued that the Bronxville, New York residence was his domicile.
For many years, up to and including 2008, Mr. McManus filed as a New York State resident jointly with his wife Kaori using the Bronxville, New York address. The McManus’ two children went to school in Bronxville, and Mr. McManus worked in NYC, commuting from Bronxville. Bronxville is in Westchester County, 19 miles from midtown Manhattan (NYC). These are very important factors in consideration of domicile. The Bronxville home was used primarily during the week.
The Connecticut home was 58 miles to midtown Manhattan. While theoretically a possible commuting distance to NYC, it would take roughly two hours, and petitioner did not do that. The Connecticut home was used primarily on weekends, holidays, and summers.
In order to change one’s domicile, we must look for a clear and convincing change in lifestyle. They must change from the old domicile, and take up a new domicile—a new fixed and permanent home. So, what changed in 2009?
First, let’s review the history:
Petitioner bought both the Bronxville home and the Connecticut home in 2002. They moved from their prior domicile in Katonah, New York (closer to Ridgefield, Connecticut than Bronxville, New York).
The Bronxville home was purchased in August 2002. It was a townhome of 2,213 square feet containing four bedrooms and three bathrooms, with an attached garage. Petitioner claimed that this home was used more like a hotel for convenient commuting to NYC.
Petitioner purchased the residence in Ridgefield, Connecticut, in December 2002. This residence is located on a 1.73 acre lot. Petitioner described it as a sprawling house, estimated to be 7,000 square feet. There is also a cottage, and a garage on the property. He further claimed that the Ridgefield, Connecticut, residence has always been his home.
With respect to the Connecticut residence, petitioner’s correspondence indicated that it was used for family gatherings during the weekends and holidays, as well as summer vacation.
Information submitted to the auditor regarding petitioner’s employment history indicated that petitioner worked in New York from 1980 to April 2008. In September 2008, he accepted a new position in St. Louis, Missouri, and began to work there for Wachovia Securities until the end of 2009. He rented an apartment in St. Louis from December 15, 2008 through 2009.
This was petitioner’s opportunity to show a shift in his habit of life towards one centered in Connecticut.
In a similar case a few years ago, Matter of Cooke, it was decided that the Cooke’s home in the Hamptons, which was used primarily on weekends and summers, was indeed their domicile as opposed to their apartment in NYC.
They emphasized the significance of the home in the Hamptons as well as the importance of the area in general. There were significant life events over a period of many years, including summer camp for the children and their friends and hobbies. The Cookes joined various clubs and frequently entertained guests at their Hamptons home. There were also many family social events celebrated in their home including graduations and anniversaries. They also went to church in the Hamptons. They kept their treasured possessions there. It was the center of their family life, where they would join together even as the children got older. Although the children did go to school in NYC, that was presented as being similar to a private boarding school, where they did their work, but went “home” to the Hamptons on the weekends.
One key difference with the present case is that the Cookes claimed to be domiciled in the Hamptons for many years prior to their audit. They filed as NYC residents because they were statutory residents—not domiciliaries. The McManuses had to show a change in domicile in 2009.
What was working for them?
Business Factor
For 2009 he was no longer working in NYC and commuting from his home in Bronxville. He worked in St. Loius from Monday through Thursday.
Home Factor
The home in Connecticut was much larger, and on a much larger property.
Mr. McManus spent the weekends, holidays, and summer with his family in Connecticut. This is their free time where they can be wherever they choose.
Lifestyle
Petitioner enjoys aviation. He obtained his private pilot’s license in 1989, his instrument rating in 1990, and a commercial license thereafter. Petitioner purchased a Mooney aircraft N252CN in 1991 and has based and maintained it, along with another plane, a Cessna 172L N4327Q,7 at the Danbury Municipal Airport located in Danbury, Connecticut, ever since. At the hearing, petitioner testified that those two planes are among his near and dear items.
What could petitioner have done to improve his case?
While this was a tough case, there are some different approaches he could have taken. He needed to show more of a family focus in the Connecticut area. What did the children do in the summer? Who or where were their friends? Beginning in 1984 and continuing through to the present time, petitioner had been a regular member of the Waccabuc Country Club, located in Wacccabuc, New York. The auditors used this fact against the McManuses because the club is in New York State. In actuality, this should have been a factor in favor of Connecticut. The club was only 7 miles from their home in Connecticut and 35 miles from their home in Bronxville. This club must have been an important part of their social life and was obviously closely associated with their weekend, holiday, and summer usage of the nearby Connecticut home.
Their domicile prior to purchasing their two homes in 2002 was in Ketonah, New York. They moved much of their furniture from the Ketonah home to their Connecticut home. They also moved a prized Copper Beech tree to Connecticut. The Ketonah home was also near to the Waccabuc Club. They could have claimed that they changed their domicile from Ketonah to Connecticut in 2002, while using the Bronxville house as a closer point to commute to NYC for work.
What worked against the McManuses?
There was not enough information regarding lifestyle or events taking place in Connecticut other than one joint party for their daughters’ Confirmation and Communion. It is possible that other events simply didn’t exist.
The children attended school and church in Bronxville. Although not discussed, the children probably had friends in Bronxville. Petitioner offered that one of the reasons that they moved to Bronxville was because of the schools. They had New York drivers licenses, and had cars registered in New York. Mrs. McManus had a home office in Bronxville. Their important mail was delivered there.
In late 2008, when Mr. McManus changed his employment, Mrs. McManus also took a job as a teacher in the Trinity School in NYC. Their older daughter began school there at that time and the younger daughter began school there in 2009. The three of them commuted from Bronxville to NYC. They could have claimed that their attendance at this school was similar to going to a private boarding school as was done in Matter of Cooke, and that the focus of their lives was in Connecticut, but there was just not enough evidence of that.
Day Count
The auditor prepared a detailed schedule for petitioner for the year 2009, and concluded petitioner spent 156 days in New York and 146 days in Connecticut during that year. The petitioner had a different day count, but could not support it. The day count did not bode well for the petitioner. One problem is that when he flew in from St. Louis, he went to his home in Bronxville on the way to Connecticut. The same applied on the way out to St. Louis. He should have gone directly from the airport to Connecticut.
The auditors also felt that it was significant that the nature of the use of the Connecticut residence did not change and was consistent with the earlier years when petitioner filed as a New York State resident. This is a valid point, because we are looking for a change; however, petitioner’s use of his prior domicile was changed.
The position in St. Louis did not turn out to be a good career move, and petitioner began actively seeking employment in the New York City area in early 2009, returning to work in New York City in 2010; however, what is important is his intention at the time he made his move at the end of 2008. Did he intend to, and did he in fact, change his domicile to Connecticut in 2009? The ALJ found that with all facts considered, petitioner has not shown a change in his lifestyle that would support his claimed change of domicile to Connecticut for the year 2009.
Petitioner listed the Bronxville home for sale in 2010 and it was sold in 2011, so it can be assumed that domicile was changed to Connecticut in 2011 (if there was no replacement home purchased in New York). It is interesting to note that the McManuses took a $200,000 federal exclusion on the sale of a “primary residence.” By taking this exclusion, the McManuses are saying that the Bronxville home was their primary residence. This completely destroys their credibility. Credibility is crucial in a case like this because the ALJ has to evaluate the petitioner’s honest intention with regard to domicile and all of the factors to be considered. This case was difficult enough when trying to convince an ALJ that a weekend home is the family domicile. When the petitioner lacks credibility it becomes that much more difficult. It is not surprising that the ALJ found that petitioner’s domicile did not change from New York to Connecticut in 2009.
“As we can see, the rules regulating what constitutes domicile consider many factors, such as primary use, day count and intention. The McManus example fails to show they qualified under those considerations.”