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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.

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Love Conquers All in New York Domicile Case

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Last week, another great domicile case was issued by New York’s Division of Tax Appeals. The case, entitled Matter of Patrick, chronicled a movie-esque love affair between long-lost high school sweethearts and—more importantly for our purposes—another win for a taxpayer in a change-of-domicile case. We also covered this case in our TiNY Blog.

The taxpayer in this case claimed a change of domicile from New York City to Paris in 2011. But he kept his apartment in New York City after the move and continued spending a significant amount of time in the City. In fact, the taxpayer spent 183 days in New York City in one of the audit years! At the same time, the taxpayer’s time in Paris was low, around 80 days per year. What could be worse? The auditors, of course, took the position that the taxpayer was unable to meet his burden of proof to establish a change of domicile by clear and convincing evidence. The Administrative Law Judge, however, focused less on the domicile factors and more on the taxpayer’s intent to decide in favor of the taxpayer.

Here’s the story:

The taxpayer attended high school in New York. He met his current wife, Clara, at a high school dance way back in the summer of 1965. While they were dating, the taxpayer gave Clara a gold-plated, heart-shaped necklace inscribed with their names as a token of his love. After high school, the taxpayer joined the army and Clara was sent to a religious boarding school in Italy. The two kept in touch despite its difficulties, but soon Clara told the taxpayer she was getting married and the two broke off communications. The taxpayer was so heartbroken he destroyed the mementos he had from her. However, for the next 40 years he did keep a photo of her, and Clara saved the heart necklace along with all of the mementos of their time together.

Fast forward 40 years. The taxpayer and his first wife lived in Connecticut and he worked in New York City. He became a workaholic, having had a demanding position as CFO, working long hours, and taking little vacation. In 2007, the taxpayer had a deathly arterial blockage and had surgery to have two stents put in. At this time, he reevaluated his life and his years-long unhappy marriage. He and his first wife separated (and eventually divorced), and in 2008 he began renting an apartment in New York City for work. Shortly after, he thought about Clara and began to search for her.

The taxpayer found Clara’s uncle, who passed on contact information to Clara. Facebook had to have been involved too, right? At the time Clara was married and living in Paris, but Clara and the taxpayer got in touch and spoke on the phone for the first time in 40 years. Later that month, they reunited New York City, where Clara revealed the heart necklace and mementos she had kept all that time. The two immediately fell back in love, and the taxpayer asked her to marry him that night! She accepted, and when she returned to Paris she told her then-husband. The taxpayer bought Clara another identical heart-shaped necklace made of solid gold and inscribed with their names. The couple secretly married in New York City the next year. After that, even though the taxpayer’s domicile factors looked pretty bad on paper, everything he did spoke volumes as to his intent to live his life with Clara in Paris.

The taxpayer purchased a New York City apartment that he kept after the move, which the auditors focused heavily on. During the audit period, the taxpayer came back several times to New York and other states for various reasons, the other thing the auditors focused on. The taxpayer’s phone bills, credit card statements, W-2’s, and 1099’s were all addressed to the taxpayer’s New York City address. He’s even still registered to vote in New York.

But, more importantly, the taxpayer testified that he never considered New York his true home, but that it was simply a place to sleep near work especially during the divorce. He purchased and extensively renovated a Paris home (with a view of the Eiffel Tower) shortly after purchasing the New York City place. Part of the reason the taxpayer spent time in New York after the move was because of a serious medical condition, which required several visits and invasive surgeries that couldn’t be done in Paris. The taxpayer decided to retire earlier than planned from his company, one because of his medical condition, but most importantly because he no longer wanted to be separated from Clara. The day after the taxpayer retired in 2011, he moved into his Paris home with Clara. His early retirement meant losing out on a potential $3 million dollars had he retired when planned. The taxpayer continued to make Paris his home by doing things like getting a French driver’s license, which is a difficult process. He went from being a workaholic to a world-traveling adventurer with Clara, finally being able to live his life in a way he never could in New York City.

Although ALJ cases like this are not precedential, we think they are part of a developing trend in domicile cases, where taxpayers have been able to overcome questionable “domicile factors” by presenting credible and heartfelt testimony about where their “home” truly is. We covered this in a 2015 blog post involving another “foreign domicile” situation. And our firm won a 2017 residency case where the taxpayer’s testimony about his move to Texas carried the day. So while auditors in these cases are almost exclusively focused only the domicile factors, and only on what’s “on paper,” the courts seem to more appropriately recognize that the standard should heavily be factored by the taxpayer’s intent. And this is good news for those of us battling these audits on a day-to-day basis.

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