New York Tax Insights Volume 4, Issue 11, November 2013

Taxpayer Wins and Loses in Statutory Residency Case

By Kara M. Kraman

In Matter of David J. and Laurie Knoebel, DTA No. 824117 (N.Y.S. Div. of Tax App., Sept. 19, 2013), a New York State Administrative Law Judge held that the taxpayers successfully proved they were not present in New York City for more than 183 days during 2006, but failed to prove they were not present in New York State for more than 183 days during the same year. The Knoebels lived in Elysburg, Pennsylvania, where they owned a home. In 2006, they filed a Pennsylvania income tax return, voted in Pennsylvania, had their automobile registered in Pennsylvania, purchased insurance in Pennsylvania and received medical care in Pennsylvania. However, during that time, the Knoebels also maintained and periodically used an apartment located on West 17th Street in Manhattan. The Knoebels also allowed their two daughters, both of whom lived in Brooklyn, to use the West 17th Street apartment without restriction. In addition to spending time in their New York City apartment, the Knoebels visited Utica, New York eight times in 2006 in order to provide assistance to Ms. Knoebel's ailing mother.

New York State and New York City income tax is imposed on "resident individuals." A resident individual refers to someone who is either domiciled in New York, or who falls within the definition of a "statutory resident." Both the Tax Law (State) and the Administrative Code (City) define a "statutory resident" as someone who, while not domiciled in New York, maintains a "permanent place of abode" in the State (or City) and spends in the aggregate more than 183 days a year in the State (or City). The Department did not assert that the Knoebels were New York domiciliaries, and the Knoebels did not dispute that the West 17th Street apartment constituted a "permanent place of abode." The only issue in the case was whether the Knoebels spent enough days in New York City and New York State to be considered statutory residents.

After hearing the evidence, the ALJ determined that the Knoebels had established by clear and convincing evidence that they were not in New York City on 16 of the 199 days asserted by the Department, putting them below the 184 day threshold. The ALJ relied on the testimony of Mr. Knoebel and one of his daughters, as well as contemporaneous records of telephone calls and credit card charges. Although the ALJ relied on both testimony and documentary evidence in reaching his conclusion, he noted that "credible testimony alone is sufficient to establish whether a day was spent in New York City."

However, for purposes of the New York State day-count, the ALJ refused to exclude the eight days the Knoebels spent in Utica, New York caring for Ms. Knoebel's mother, as urged by the Knoebels. The Knoebels claimed that the decision in Stranahan v. New York State Tax Commission, 68 A.D.2d 250 (3d Dep't 1979), which held that days spent in New York for the treatment of a taxpayer's serious illness should be excluded from the day count for statutory residency purposes, permitted them to exclude the days they spent in Utica caring for Ms. Knoebel's mother. The ALJ rejected this approach and declined to expand the holding in Stranahan to cover days spent caring for someone in New York who is ill, on the grounds that such an expansion would make practical administration of the rules "impossibly cumbersome."

The ALJ also rejected the Knoebels' argument that the days they spent in Utica should be excluded because there was no nexus between Utica and their "permanent place of abode" in New York City, noting that there is no authority for the proposition that there must be a connection between the presence in New York and the permanent place of abode. Accordingly the ALJ found that the Knoebels were properly regarded as statutory residents of New York State, although not of New York City.

Additional Insights

Since Stranahan was decided in 1979, taxpayers have frequently sought to extend the holding that "when a nondomiciliary seeks treatment in New York for a serious illness, the time spent in a medical facility for the treatment of that illness should not be counted [for statutory residency purposes]." In Kern v. Tax Appeals Tribunal, 240 A.D.2d 969 (3d Dep't 1997), the Appellate Division sustained the Tribunal's rejection of a taxpayer's attempt to exclude days during which the taxpayer was an outpatient visiting doctors in New York, and in Matter of Dr. Charles F. Brush III &amp...