One of the more obscure provisions in the New York residency law, known as the 548-Day Rule, allows a New York-domiciled taxpayer to be treated as a nonresident simply by spending lots of time out of the United States for an 18-month period. We’ve covered this obscure rule a couple times in prior articles (see here and here), but it’s also exciting when we see a published decision on the issue. And don’t judge us for being excited about an odd tax case; we don’t get out much.
Last week, New York’s Tax Appeals Tribunal tackled a case dealing with the 548-Day Rule, holding that a taxpayer who worked in London during the time he was separated from his New York-based spouse failed the 548-Day Rule because he was not legally separated from her (Matter of Lynch, DTA No. 830686 (N.Y. Tax App. Trib. Apr. 17, 2025)). While the eventual result in this case isn't shocking or unusual, the decision does illustrate that compliance with every aspect of the 548-Day Rule is required, in order to secure favorable treatment. The law turns square corners, and this is especially true in 548-Day Rule case.
In the Lynch case, the taxpayer and his wife filed their New York State tax returns on a married-filing-separately basis from 2015 to 2018, with the taxpayer filing nonresident returns in 2015, 2016, and 2017, and his wife filing a part-year return in 2015 (having moved into the state mid-year) and resident returns in 2016, 2017, and 2018. For 2018, the taxpayer filed a part-year resident return, claiming he moved back into New York State in February 2018.
Throughout this time, the taxpayer conceded that he was domiciled in New York, even though he was spending most of his time living and working in the UK. As our regular readers know, it takes more than that to break domicile. He nonetheless claimed nonresident status during these years based on Tax Law § 605(b)(1)(A)(ii), or in layman’s terms, “the 548-Day Rule.”
The 548-Day Rule allows for a taxpayer who is otherwise domiciled in New York (and would normally therefore qualify as a resident for tax purposes) is not considered a resident for income tax purposes as long as they meet three qualifications:
- Within any period of 548 consecutive days (one-and-a-half years), the taxpayer must be present in a foreign country or countries for at least 450 days.
- During that same period, neither the taxpayer nor the taxpayer’s spouse (unless legally separated) or minor children can be present in New York State for more than 90 days.
- During any portion of the 548-day period that is less than a full year (also called the “short period”), the ratio of the number of days the taxpayer is in New York out of 90 days must not exceed the ratio of the total number of days in the short period out of 548 days.
There was no dispute that the taxpayer himself met all the various requirements. He was present in a foreign country during the relevant 548-day periods for at least 450 days; he spent less than 90 days in New York during the applicable periods; and, presumably, he met the various “short period” tests applicable to each period. But as outlined above, one of the day-count tests requires that the taxpayer’s spouse and minor children also meet a specific day-count requirement; namely, they can't spend more than 90 days in New York. This is the case even if the spouse isn't claiming special treatment under the 548-Day Rule. For whatever reason, the law still requires the taxpayer’s spouse (and kids) to limit days in New York to less than 90 as well.
So what happened here? Due to marital difficulties (or other stuff that is none of our business), the taxpayer and his spouse were separated. The problem is they were not legally separated, and under the strict terms of the rule, the taxpayer’s spouse’s time counts unless they are legally separated. So here, while they were separated “by fact,” they weren't legally separated. And that minor detail, unfortunately for the taxpayer, made all the difference. Because the taxpayer could not meet every specific single requirement of the 548-Day Rule, he lost.
Is this fair? Not really. But when you have a law like the 548-Day Rule that provides such a tangible benefit, we can expect it will be enforced strictly by the tax department, by its very terms.
