Monday, December 29, 2008
Without question, the New York State Department of Taxation and Finance has the most advanced residency audit program in the nation. We would hazard to guess that the department, whether out of necessity -- because so many taxpayers in the New York region have, at least allegedly, questionable residency issues -- or sheer force of will, does more auditing of taxpayers on residency issues than does any other state, and perhaps more than all states combined. So, like it or not, that is an area with which practitioners have to be conversant. And given that this column is generally devoted to tax practice issues (with a focus on New York), We thought it a good time for a nuts-and-bolts discussion about what a residency audit is all about.
Of course, the focus here will be on New York's rules and procedures, but the department generally follows the outlines of the 1996 North Eastern State Tax Officials Association cooperative agreement regarding domicile, statutory residence, and allocation, in which 13 states pledged to focus on the same primary factors for considering a person's domicile status. So the analysis in this article will likely be helpful in addressing other states' residency audits as well.