MoFo New York Tax Insights, Volume 5, Issue 8, August 2014

Department Releases New Nonresident Audit Guidelines to address Gaied

By Michael J. Hilkin

Four months after the Court of Appeals held in Matter of Gaied v. Tax Appeals Tribunal, 22 N.Y.3d 592 (2014) (discussed in the March 2014 issue of New York Tax Insights), that there was no rational basis for the Department's position that an individual who maintains a dwelling in New York for others but does not reside in that dwelling nonetheless has a "permanent place of abode" in New York for statutory residency purposes, the Department has updated its personal income tax Nonresident Audit Guidelines ("Guidelines"). The revisions to the Guidelines primarily address the Gaied decision, but also provide other guidance to auditors and to taxpayers.

Revisions Addressing the Gaied Decision. Under New York's "statutory residency" test, individuals who maintain a permanent place of abode in New York and spend more than 183 days in the State during a year are treated as residents for income tax purposes. The Guidelines have customarily contained a lengthy discussion regarding the statutory residency test. The revised Guidelines now include a summary of Gaied, and state that the Court of Appeals concluded in the case that "for a taxpayer to be maintaining a permanent place of abode, he must have a 'residential interest' in the dwelling."

The Department's revised Guidelines state that the ruling in Gaied "is consistent with current Audit policy that the taxpayer must have a relationship to [a] dwelling for it to constitute a permanent place of abode." However, the list of factors for an auditor to consider when determining whether a taxpayer has a sufficient relationship with a dwelling for it to be classified as a permanent place of abode no longer contains a factor examining "[w]hether the taxpayer has ownership or property rights in the dwelling."

Borrowing language from the holding in Gaied, the revised Guidelines now state that a property may be classified as a permanent place of abode if the taxpayer has a "residential interest" in the property. The revised Guidelines also provide examples clarifying the circumstances in which the Department believes a taxpayer will have a residential interest in a property. Those examples indicate that the Department continues to focus primarily on a taxpayer's ability to use a property as a dwelling space, rather than the taxpayer's actual use of the property as a dwelling space. In one new example, an individual who...