Domicile Planning Helps Prevent Residency Audits
Where do you live? Seems like a straightforward question, doesn’t it? Maybe not.
With states scrambling for money, more are turning to nonresident audits to uncover much needed additional revenue. Increased scrutiny of tax returns has resulted in an upsurge of tax examinations subjecting filers to interest on underpayments as well as potential criminal and fraud penalties.
Under the terms of the North Eastern States Tax Officials Association (NESTOA) agreement, place of domicile is determined by these primary factors: home; time; items considered near and dear; active business involvement; family connections. New York and New Jersey are parties to this agreement. Ultimately it comes down to how each state defines statutory residency combined with the results of a mathematical day count test.
How can you lessen your chance of being audited? Proactive domicile planning with an experienced professional can help. And should you be targeted, treat the audit seriously and engage the advice of a tax expert to guide you.
EisnerLubin partner, Barry Horowitz, oversees the firm’s State and Local Tax (SALT) practice including advising clients on residency and nexus issues. He has represented hundreds of clients in audits with outstanding results. Barry is a sought-after speaker and regular contributor to articles on this topic.
For expert guidance with domicile planning and audits, contact Barry Horowitz at 212 829 3211 or bhorowitz@withum.com. Click on the links for these helpful checklists: Residency Audit Tips and Traps ; Establishing Domicile.