Preparing for a state Income tax Audit

Submitted by Steve Hagedorn on Wed, 2018-03-14 15:37

A little background information:

In 2012, I established residency in a “no income tax” state. I had retired 2 years prior in 2010. To this day (2018) I maintain property in both states. In 2013, I took responsibility to serve as caregiver for my elderly parent and as part of that plan (having her age in place at home), I renovated the house I had “vacated”. In years 2013-2015, while still able to travel, she & I (and other family members) spent half the year in each state. My parent’s health deteriorated (in late 2015) prompting surgeries, therapies and doctor’s appointments. Trying to coordinate this type of care between two state was becoming overwhelming so in 2016, a decision was made regarding application for in-home state assistance (and medicaid was approved in 2016). Late in 2017, my parent transitioned to LTC and I am now making plans to rent or sell the property. For all intent and purposes this property would have been sold or rented back in 2012 had I not taken on the responsibilities of caring for my parent.

In March 2018, I receive a “Failure to File Notice” for the tax year 2013. I called for an explanation and it appears I neglected to change my address on some of my financials…in particular an investment bank that generates 1099s. This 1099 address discrepancy was flag recently by the IRS and forwarded to state I moved from. I gave the background information (mentioned above) as part of my conversation with the state revenue specialist. He determined that this might be a more complicated matter and that additional information will need to be provided. As I await the next correspondence, I wanted to share this story with readers who may be in retirement and are thinking of caring for a family member.

For Alan and others who respond: How do I prepare for this type of potential audit. I have created a spreadsheet that details monthly credit card activity which should help substantiate my time spent in each state, but care decision prioritized many of these locale decisions, especially as care became more acute.

Thanks in advance.



Submitted by Alan - IRA critic on Wed, 2018-03-14 22:33

Steve, all you can do is collect as much evidence of the number of days of physical presence in each state for 2013. Most states use 183 days to determine domicile. While some of the state guidelines are statutory there will inevitably be some subjective decisions. A big one of those is whether a close call for 2013 will lead to similar challenges for the years after that. If you are dealing with the super aggressive states such as NY or CA, the borderline calls will not go in your favor. Both states have long term experience pursuing refugees to no tax states in particular. They don’t have to be concerned with your having paid taxes to the new state as an indication of intent or as amounts they would have to give credit for. I don’t know if there are any carve outs for family care giving efforts, perhaps someone else can comment on that or other possible factors.



Submitted by Steve Hagedorn on Wed, 2018-03-14 22:58

My apologizes for incorrectly spelling “Alan” and thanks for the response. I corrected  my OP.



Submitted by Ben Meyer on Fri, 2018-03-16 02:58

  • New York State has a form that they use to evaluate a claim that a decedent was not domiciled in New York.  Seeing the criteria that they use might be helpful for income tax as well.  But the best thing is probably to show them proof that you were not present in the state in question for 183 days or more for the year(s) in question, as Alan posted.  You should also advise them in an appropriate way that the residence you maintained there was not your domicile, but was only for your temporary accomodation.  It would also help to show that you took steps to establish your new state as your permanent home, by showing your new driver license and any other artifacts showing your new permanent connection with your new state.  See the form at:  https://www.tax.ny.gov/pdf/current_forms/et/et141.pdf


Submitted by Bruce Steiner on Tue, 2018-03-20 13:55

  • Domicile and number of days are different.  In some states, such as New York, you’re generally taxable as a resident if you domiciled in the state (regardless of how much time you spend there), or even if you’re not domiciled in the state, you’re generally taxable there if you have a permanent home in the state and you’re not physically present in the state for more than 183 days.
  • If the state in question is like New York or New Jersey, you’ll have to show that you weren’t domiciled in the state (which is based on all of the facts and circumstances), and also that you either didn’t have a permanent home in the state or that you weren’t physically present in the state for more than 183 days.
  • Bruce Steiner


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