- Changing Domicile: Satisfying the Burden of Proof When Moving Abroad
- April 22, 2015 | Author: Mitchell R. Kops
- Law Firm: Withers Bergman LLP - New Haven Office
Historically taxpayers have faced difficulty overcoming a presumption against a change in domicile to a foreign jurisdiction.
The US Tax Controversy Group at Withers Bergman successfully defended a foreign domicile change at the New York State Division of Tax Appeals in a potentially significant decision involving a change of domicile from New York to the United Kingdom for personal income tax purposes.
A New York State Administrative Law Judge concluded that the taxpayer, represented by Withers, successfully established that he changed his domicile from New York to the UK for the years 2006-2008. Matter of May, DTA No. 825173 (N.Y.S. Div. of Tax Appeal, January 8, 2015). Although New York State has declined to appeal the decision to the NYS Tax Tribunal, the determination is significant for a number of reasons.
Under New York law, an individual’s domicile continues until a new one is established. The party alleging the domicile change, whether the taxpayer or NYS, bears the burden of proving a change of domicile by clear and convincing evidence. In this case, the taxpayer had asserted a change of domicile from New York to London during the years in question. At the examination level, the auditor determined that the taxpayer had failed to prove an intent to remain in the UK indefinitely. Consequently, the taxpayer was considered a New York domiciliary for tax purposes, and significant income tax, penalties and interest was assessed against him.
In reaching his decision that the taxpayer had met his burden of proof, the ALJ rejected New York State’s claim that proving a change of domicile to a foreign domicile requires a greater showing of proof than proving a change of domicile to another state. Historically, taxpayers have faced difficulty overcoming a presumption against a change in domicile to a foreign jurisdiction.
The decision also makes clear that a taxpayer can successfully demonstrate an intent to make a new location his permanent home, where he is able to present objective evidence, including documentation and credible testimony, which satisfies the historical criteria utilized by the NYS Tax Tribunal to analyze a change of domicile. Largely due to the credible and compelling testimony of multiple witnesses, the administrative law judge rejected the notion that a foreign domicile could not be established where a taxpayer continued to maintain a New York home.
Cases involving domicile changes are heavily fact-specific, and it can be challenging for taxpayers to prove their subjective intent. Establishing changes to a foreign domicile are particularly challenging, as they present unique factual, legal, and procedural issues that should be addressed at the audit level in anticipation of potential litigation. Taxpayers can prevail, however, where they present a compelling narrative supported by documents, testimony and other evidence that should allow them to satisfy their burden of proof.