In 1989, that agency conducted an audit program that resulted in increased tax revenues of approximately $120 million, with an average of about $100,000 per taxpayer.

The result of that audit program demonstrated in very strong terms the fiscal benefit of the state’s focus and expenditures of time and resources on auditing returns of taxpayers with connections to the state.

The New York residency audits have a two-pronged test: They look to see if the taxpayer is a domiciliary of New York or if the taxpayer is a statutory resident.

There are five primary factors considered under the domiciliary test:

maintenance of a home

active business involvement

time spent in the state (which is supposed to be independent of the so-called “183-day rule” but, in reality, auditors usually do a day count similar to the 183-day rule)

location of near and dear items (auditors look for items of significant value as well as items with sentimental value)

location of family

Maintenance of a home may include a geographic area as opposed to a particular dwelling. For example, the taxpayer could have spent the majority of his adult life in a large family home. Once the children move out, he sells his New York home, buys a condo in Florida, and purchases a small cottage in New York. In these types of fact patterns, the auditors will usually review the nature of the homes in the two states; attributes like size and value are often considered.

Active business involvement often receives significant attention. Generally the auditor will scrutinize the entity or entities from whom the taxpayer receives compensation, whether they are partnerships or closely held corporations, major companies, etc. The focus is on where the business is conducted as opposed to where the taxpayer is located. It is important to note that this factor is focused on active business involvement. A taxpayer’s passive involvement in various New York business ventures should not create a problem from a residency standpoint.

The aforementioned 183-day rule refers to time spent in New York State. This may be confused with the time-count rule for a statutory resident. Here the auditor will consider how many days (or partial days) the taxpayer spent in the state. Unlike the bright-line test of 183 days in the statutory resident test, here the auditor will consider time spent as one of several primary factors, although the closer the taxpayer gets to the 183 days, the more likely the auditor may determine this factor as an indication of New York residency. It is important for a taxpayer to keep in mind that if he or she were to spend significantly less than 183 days in New York (160, for example) but, due to travel for business or vacation or a combination of the two, he or she were to spend only 100 days in Florida, those facts could provide a sufficient basis for the auditor to conclude that the taxpayer, in fact, satisfied the time factor as a New York domiciliary.

Location of near and dear items is something of a common-sense or logical hypothesis and conclusion. It seems logical that people usually keep important things as close as possible, whether those items are works of art, cars, boats, or family heirlooms. What the auditor will do is ask the taxpayer where these items are located and, just to be sure, the auditor may also review insurance policies or other independent sources to verify the information.

Location of family is sometimes a delicate matter. The auditors will generally consider this factor only if the other factors, taken in total, do not result in a clear determination.

If the auditors are not able to establish that the taxpayer is a domiciliary of New York, they then apply the statutory resident test.

The statutory residence rule has two elements: First, does the taxpayer maintain a permanent place of abode (a dwelling maintained by the taxpayer, whether or not owned by him; generally, this will include a dwelling owned or leased by a spouse) in the State of New York?

The second element of the statutory residence rule is the 183-day rule. The taxpayer with a permanent place of abode in New York State has the burden of proof to show that he or she did not spend 183 days in the state during the tax year.

When counting days for purposes of the 183-day rule, it is important to note that a part of a day may be counted as a day. For example, if you arrive in New York on a flight that lands at 11:40 p.m., and leave the airport at 12:10 a.m., you have spent two days in New York.

It is important to note that auditors have the ability to exercise their subpoena powers—and regularly do so—in order to substantiate a taxpayer’s claims. For example, if the taxpayer claims a sailboat was moved to Florida, the auditor will want to see insurance documents or receipts for things like transportation, marina fees, and maintenance charges.

When reviewing the taxpayer’s records or “diary,” it is not uncommon for the auditor to compare the taxpayer’s records against the taxpayer’s EZ Pass account records. If the taxpayer’s diary shows numerous dates being out of state, the auditor may question the accuracy of the diary if, on several occasions, the EZ Pass indicates the taxpayer’s electronic toll payer was traveling through New York State. Auditors will also review state and federal tax returns, cell phone numbers, and credit card charges.

There are numerous subtleties and various aspects of all the elements of both the domiciliary test and the statutory resident test. This article is not intended to provide exhaustive guidance on the myriad issues that need to be properly analyzed in order for former New York residents to properly determine their potential exposure on a residency audit.

What is important to understand is that there is a great deal more than merely a 183-day rule involved and that New York State (and, in some cases, New York City) has a significant financial incentive to conduct audits and devote money and state resources to establish that a former New York resident is still a New York resident—at least for the purposes of the New York State Department of Taxation and Finance.

Brian K. Duffey concentrates his practice in estate planning, probate, and real estate. He has experience in the areas of family business succession planning, buy-sell agreements, Florida homestead and elective share disputes, and preparation of federal and Florida estate, gift, and fiduciary tax returns. He is admitted to practice in Florida (1999). Contact Mr. Duffey at bduffey@hodgsonruss.com.