Domicile Guide - A seminar for the Florida Snowbird

Tax Appeals Tribunal

State of New York

*1 IN THE MATTER OF THE PETITIONS OF HARVEY AND KATHRYN WACHSMAN

FOR REDETERMINATION OF DEFICIENCIES OR FOR REFUND OF PERSONAL INCOME TAX UNDER

ARTICLE 22 OF THE TAX LAW FOR THE YEAR 1983.

DTA No. 806930 and 806931

TSB-D-95(31)I

November 30, 1995

Opinion

The Administrative Law Judge determined that the petition of Kathryn Wachsman was timely filed and that petitioners were not domiciled in New York in 1983. The Division did not take exception to these conclusions.

The Division did take exception to the Administrative Law Judge's order to vacate his April 16, 1992 determination and to reopen the record. The Division argues that petitioners' motion papers failed to establish that the 1983 diary could not with due diligence have been discovered prior to the hearing held on March 20, 1991. Specifically, the Division points out that petitioners failed to specify what efforts were made to locate and extract the 1983 diary from storage.

In response, petitioners state that "[t]he ALJ did make a finding that Harvey Wachsman's general allegation that the diary could not be located despite diligent effort, when considered with the particular facts presented in the proceeding, satisfied the due diligence requirement" (Petitioners' brief in opposition, p. 15).

We reverse the order of the Administrative Law Judge.

In Matter of Byram (Tax Appeals Tribunal, August 11, 1994), we stated the principles applicable to a motion made to an Administrative Law Judge to vacate a determination based on newly discovered evidence. In Byram, as is the case here, the motion to vacate was made while an exception to the determination was pending before the Tax Appeals Tribunal. We recognized in Byram that we had more discretion to reopen the record of a pending matter than we did of a proceeding that had been the subject of a final agency action as was Matter of Jenkins Covington, N.Y. v. Tax Appeals Tribunal (195 AD2d 625, 600 NYS2d 281, lv denied 82 NY2d 664, 610 NYS2d 151). Nonetheless, we concluded that this discretion should be used sparingly in accordance with our well established policy of not allowing additional evidence to be submitted after the record has been closed (Matter of Schoonover, Tax Appeals Tribunal, August 15, 1991). The standard applied in Byram was that the party moving to vacate the determination of the Administrative Law Judge had to show that the newly discovered evidence could not have been discovered with due diligence in time for the hearing.

The facts of Byram are indistinguishable from those before us. The petitioner in Byram sought to reopen the record to introduce certain records that were thought to be lost but were discovered after the hearing in old boxes in a storage area. The petitioner in Byram stated at the hearing that these records existed, but did not state that he had looked for them and been unable to retrieve them. In his motion, the Byram petitioner stated that he had searched diligently for the records prior to the hearing, but did not specify the efforts made. We held that a mere conclusory statement that diligent efforts had been made was not sufficient and denied the motion to vacate and reopen.

*10 Similarly, here petitioners did not state at their first hearing that they had actually looked for the 1983 diary. Instead, Dr. Wachsman explained that the diary was not available because of construction in his office which resulted in an enormous number of files going into various storage places. In an affidavit in support of the motion to reopen, Dr. Wachsman stated simply that he was "unable to locate the 1983 diary despite diligent effort, due to the fact that the diary was placed in storage along with files, books, records, and other documents" (Affidavit in support of motion).

In evaluating this evidence, the Administrative Law Judge stated in his order "[t]he only element which has not clearly been proven by petitioners in their moving papers is that they exercised due diligence in attempting to locate the diary prior to the hearing" (Administrative Law Judge order). However, the Administrative Law Judge granted the motion on the basis that "[i]f, as petitioner Harvey Wachsman's affidavit points out, thousands of boxes containing documents, business records, books, etc. were placed in storage, it is neither incredible nor inconceivable that the 1983 diary could not be located" (Administrative Law Judge order). We find this statement to be an insufficient basis to reopen because it states only what is not disputed, i.e., that the 1983 diary could not be located, and does not address the relevant question, i.e., whether petitioners made a diligent effort to attempt to locate this document. Further, we find, as we did in Byram, that Dr. Wachsman's conclusory statement in his affidavit that diligent efforts were made does not in itself provide a basis to reopen. We agree with the Division that "[t]he conclusion that a diligent effort was made to locate his 1983 diary was not for Harvey Wachsman to make, rather his affidavit should have established a basis for the Division of Tax Appeals to draw the same conclusion" (Division's brief in support of exception, dated March 21, 1995, p. 10).

Without the diary and additional testimony offered at the March 10, 1994 hearing, we conclude, as did the Administrative Law Judge in his first determination, that petitioners have not established that they were in New York less than 184 days in 1983 and, therefore, have failed to prove that they were not residents of New York for 1983 pursuant to former section 605(a)(2) of the Tax Law. [FN6] At the March 20, 1991 hearing, neither petitioner testified as to their whereabouts on specific days during 1983. By his own admission, Dr. Wachsman was unable to remember where he was on specific days in 1983 (Tr., p. 58). The only documentary evidence offered by petitioners with respect to their daily activities were the inconsistent summary schedules: the schedule submitted with their petitions indicating they each spent 140 days in New York and the schedule submitted at the hearing stating that Dr. Wachsman spent 149 days in New York and Mrs. Wachsman 150 days in 1983. Petitioners did not offer specific testimony from the individual or individuals who prepared the summary schedules to explain how the summaries were prepared (cf., Matter of Avildsen, Tax Appeals Tribunal, May 19, 1994, rearg denied January 26, 1995 [where the taxpayer's witness provided detailed testimony explaining that the summaries of the taxpayer's activities were prepared by the witness based on her review of the taxpayer's daily diaries which were records maintained by the witness]). Therefore, based on the original record in this matter we conclude that petitioners have failed to sustain their burden to prove that they were in New York less than 184 days in 1983.

*11 We will next assume that the Administrative Law Judge correctly vacated his determination and reopened the record in this matter, and we will consider whether the Administrative Law Judge correctly decided the issues based on this expanded record. [FN7] Although this discussion is hypothetical given our disposition of the first issue in this case, we offer this analysis to create a complete decision for review.

In his second determination in this matter, the Administrative Law Judge concluded that:

"the credible testimony of petitioners (most notably, the ability of petitioner Harvey Wachsman to recall specific cases, clients and reasons for petitioners' whereabouts on days in question), taken together with the 1983 diary which was maintained by petitioners' secretaries, substantiates that they did not spend more than 183 days in New York in 1983 and, accordingly, cannot be taxed as residents for such year" (Determination, January 12, 1995, conclusion of law "F").

On exception, the Division contends that petitioners testimony:

"lacks the requisite basis for credibility as it fails to demonstrate that the witnesses accurately remembered details of their whereabouts in 1983 or truthfully accounted such details [citation omitted]. It would be unreasonable to conclude that the taxpayers could accurately recall, without the assistance of records, their whereabouts on every day in 1983 either at the time of their initial hearing on March 20, 1991, or at the rehearing on March 10, 1994. In this matter it is quite clear that the petitioners rely on records that are inadequate to determine presence in New York State when testifying that they were not present in New York for greater than 183 days in 1983" (Division's brief on exception, dated March 21, 1995, p. 16).

We agree with the Division. Although we defer to the Administrative Law Judge's evaluation of the credibility of the witness, we are not bound by that determination (see, Matter of Stevens v. Axelrod, 162 AD2d 1025, 557 NYS2d 809; Matter of Spallina, Tax Appeals Tribunal, February 27, 1992; see also, Matter of American Express Co. v. Tax Appeals Tribunal, 190 AD2d 104, 597 NYS2d 485, lv denied 82 NY2d 663, 610 NYS2d 151). In this case, we believe that the record indicates that the Administrative Law Judge erred in finding petitioners' testimony credible and adequate to establish that petitioners spent less than 184 days in New York in 1983.

Petitioner Harvey Wachsman acknowledged at each hearing that he was not able to recollect his daily whereabouts in 1983 (Transcript of March 20, 1991, p. 58, Transcript of March 10, 1994, pp. 27-28). At the March 10, 1994 hearing, Dr. Wachsman testified that the only way he could account for his daily activity in 1983 was through the diary (Transcript of March 10, 1994 hearing, pp. 27-28). Thus, Dr. Wachsman's testimony can only be as reliable as the diary. Because we find the diary to be an unreliable account of petitioners' daily activities in 1983, we can only conclude that Dr. Wachsman's testimony is similarly unreliable and that the Administrative Law Judge erred in finding the testimony credible.

*12 The unreliability of the diary is evidenced by the fact that the diary has resulted in at least two, and possibly three, inconsistent accounts of petitioners' daily presence in New York. According to the testimony, the diary was the source of the summary attached to petitioners' petition that attributed 140 days to New York (Transcript of March 20, 1991, p. 35) as well as the basis of the summary prepared by petitioners and offered at the March 10, 1994 hearing which attributed 149 days to New York for Dr. Wachsman and 150 for Mrs. Wachsman. The diary was also apparently the source of the third inconsistent day count reported on the 1983 New York State tax returns as 120 days worked in New York (Transcript of March 10, 1994 hearing, p. 49). The Administrative Law Judge suggested that the summary presented at the March 10, 1994 hearing was the most reliable because it was prepared by petitioners themselves while the other summaries were prepared by petitioners' bookkeepers and/or accountants on petitioners' behalf. We see absolutely no basis for finding one summary more reliable than the other. According to Dr. Wachsman, the diary was maintained not by him but by several secretaries who Dr. Wachsman could not specifically identify (Transcript of March 10, 1994 hearing, p. 15). Therefore, there is no reason to assume, and petitioners have not offered any reason to conclude, that Dr. Wachsman's review of the diary would render a more accurate analysis of the diary's meaning than would an analysis performed by someone else who worked for petitioners, in particular the persons who prepared the diary. We are left with a diary that has inexplicably resulted in at least two different day counts by petitioners and we find the diary and petitioners' testimony based on this diary unreliable.

Further, the record reveals that Dr. Wachsman only specifically recalled case, clients and particular activities for those days where the diary contained specific entries, i.e., the days claimed to have been spent outside of New York and Connecticut. Therefore, Dr. Wachsman's specific testimony could only account for 51 non New York days in 1983 and would be insufficient to prove that petitioners were nonresidents.

For these reasons, we conclude that even if the Administrative Law Judge correctly ordered the record to be reopened, he erred in determining that petitioners did not spend more than 183 days in New York in 1983.

Again, for the sake of a complete decision for review, we will engage in another hypothetical analysis: assuming the Administrative Law Judge correctly held that petitioners were nonresidents of New York during 1983, did the Administrative Law Judge correctly conclude that petitioners proved that they were entitled to allocate 199 working days outside of New York because the services performed on these days were, pursuant to 20 NYCRR former 131.18(a), performed by petitioners outside of New York State by necessity, not convenience. [FN8] The Administrative Law Judge's entire rationale for his conclusion was as follows:

*13 "Petitioners' testimony concerning the reasons for continuing the Wachsman and Wachsman partnership related primarily to the fact that they (along with Steven Pegalis) were attempting to develop a national law practice, that petitioners were well known in Connecticut (as Wachsman and Wachsman) and that the partnership received many referrals from lawyers and individuals. Such testimony establishes that the work performed at their home/office in Connecticut and in the courts of that state were out of necessity rather than for their own convenience" (Determination, conclusion of law "G").

The Division argues that the reasons listed by the Administrative Law Judge do not support the conclusion that petitioners were required to perform work at their home in Connecticut rather than in their office in New York City. We agree with the Division.

The general rule developed by the abundant case law in this area is "that work performed at an out-of-State home which could just as easily have been performed at the employer's New York office is work performed for the employee's convenience and not for the employer's necessity" (Matter of Wheeler v. State Tax Commn., 72 AD2d 878, 421 NYS2d 942, 943) and cannot be utilized to allocate income outside of New York. The policy justification for this rule "lies in the fact that since a New York State resident would not be entitled to special tax benefits for work done at home, neither should a nonresident" (Matter of Speno v. Gallman, 35 NY2d 256, 360 NYS2d 855, 858). The taxpayer's burden under this rule is to prove that for each day claimed as a non New York day the taxpayer actually performed work in the home office that could not just as easily been performed at the New York State office: the taxpayer does not sustain his burden simply by showing that some work had to be performed outside of the State or even that a non New York office had to be maintained (Matter of Fischer v. State Tax Commn., 107 AD2d 918, 484 NYS2d 345; Matter of Howell, Tax Appeals Tribunal, October 31, 1991).

Petitioners' evidence as to what work was performed in Connecticut was their very general testimony that they saw clients in their home office, made court appearances and took depositions. Petitioners did not provide any specific evidence as to what work was performed in Connecticut for any of the days claimed to be worked there. In fact, petitioners identified a day spent in Connecticut solely by the absence of any entry in their daily diary. Although petitioners' general testimony may be sufficient to establish that they were required to maintain an office in Connecticut and that they were required to perform some services in Connecticut, it is not sufficient to prove that for each day claimed petitioners performed services in Connecticut that could not just as easily have been performed in their New York office.

Although petitioners failed to prove that the days spent in Connecticut were spent there for their employer's necessity, we conclude that petitioners are entitled to treat as non New York days the 51 days spent by petitioners in states other than Connecticut. In contrast to the entries for the Connecticut days, the diary entries for the non New York, non Connecticut days were specific and sufficient coupled with the recollections they triggered in Dr. Wachsman to establish that petitioners performed services that could not just as easily have been performed at their New York office. Therefore, we conclude that if petitioners were found to be nonresidents their allocation should be based on 342 days worked in 1983, with 51 worked outside New York State and 291 worked in the State. However, as stated earlier, we have addressed this issue only hypothetically as our preliminary conclusion was that petitioners had failed to prove that they were nonresidents during 1983.

*14 Accordingly, it is ORDERED, ADJUDGED and DECREED that:

1. The exception of the Division of Taxation is granted;

2. The determination of the Administrative Law Judge is reversed;

3. The petition of Harvey and Kathryn Wachsman is denied;

4. The notices of deficiency issued to each petitioner dated July 14, 1986 are sustained.