Use your browser's "back" button to return to the text.Matter of LEPLEY
DTA NO. 814368
STATE OF NEW YORK - DIVISION OF TAX APPEALS
June 19, 1997
OPINION: A. Tax Law @ 605(b) provides, in pertinent part, as follows: "(1) Resident individual. A resident individual means an individual: "(A) who is domiciled in this state, unless (i) he maintains no permanent place of abode in this state, maintains a permanent place of abode elsewhere, and spends in the aggregate not more than thirty days of the taxable year in this state, or. . .
"(B) who is not domiciled in this state but maintains a permanent [*50] place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the taxable year in this state, unless such individual is in active service in the armed forces of the United States. n3
n3 A similar provision is set forth in the Administrative Code of the City of New York @ 11-1705(b). B. While there is no definition of "domicile" in the Tax Law the Division's regulations (20 NYCRR former 102.2[d]) provided, in pertinent part: "(d) Domicile. (1) Domicile, in general, is the place which an individual intends to be his permanent home -- the place to which he intends to return whenever he may be absent.
"(2) A domicile once established continues until the person in question moves to a new location with the bona fide intention of making his fixed and permanent home there. No change of domicile results from a removal to a new location if the J. intention is to remain there only for a limited time; this rule, rule applies even though the individual may have sold or disposed of his former home. The burden is upon any person asserting a change of domicile to show that the necessary intention existed. In determining an individual's intention [*51] in this regard, his declarations will be given due weight, but they will not be conclusive if they are contradicted by his conduct. The fact that a person registers and votes in one place is important but not necessarily conclusive, especially if the facts indicate that he did this merely to escape taxation in some other place.
"(3) Domicile is not dependent on citizenship; that is, an immigrant who has permanently established his home in New York State is domiciled here regardless of whether he has become a United States citizen or has applied for citizenship. However, a United States citizen will not ordinarily be deemed to have changed his domicile by going to a foreign country unless it is clearly shown that he intends to remain there permanently . . . .
"(4) A person can have only one domicile. If he has two or more homes, his domicile is the one which he regards and uses as his permanent home. In determining his intentions in this matter, the length of time customarily spent at each location is important but not necessarily conclusive. As pointed out in subdivision (a) of this section, a person who maintains a permanent place of abode in New York State and spends more than [*52] 183 days of the taxable year in New York State is taxable as a resident even though he may be domicile elsewhere." Permanent place of abode is defined in the regulations at 20 NYCRR former 102.2(e)(1) as: "a dwelling place permanently maintained by the taxpayer, whether or not owned by him, and will generally include a dwelling place owned or leased by his or her spouse."
C. In order for there to be a change in domicile, there must be an actual change in residence, coupled with an intent to make the new location a fixed and permanent home (Matter of Minsky v. Tully, 78 AD2d 955, 433 NYS2d 276). Before there can be a finding that a taxpayer changed his domicile, the requisite intent as well as the actual residence at the new location must be present (Matter of Minsky v. Tully, supra).
D. The test of intent with respect to a purported new domicile has been stated as "whether the place of habitation is the permanent home of a person, with the range of sentiment, feeling and permanent association with it" (Matter of Bodfish v. Gallman, 50 AD2d 457, 378 NYS2d 138, 140 quoting Matter of Bourne's Estate, 181 Misc 238, 41 NYS2d 336, affd 267 App Div 876, [*53] 47 NYS2d 134, affd 293 NY 785). In Matter of McKone v. State Tax Commission (111 AD2d 1051, 490 NYS2d 628, affd 68 NY2d 638, 505 NYS2d 71) the Court quoted the following on the intent necessary to establish domicile: "'The intention necessary for acquisition of a domicile may not be an intention of living in the locality as a matter of temporary expediency. It must be an intention to live permanently or indefinitely in that place. But it need not be an intention to remain for all time; it is sufficient if the intention is to remain for an indefinite period.' (25 Am Jur 2d Domicile @ 25, at 19[1966.) "When a person has actually removed to another place, which is his fixed present residence, with an intention of remaining there for an indefinite time, it becomes his place of domicile, notwithstanding he may have a floating intention to return to his former domicile at some future and indefinite time. (28 C J S Domicile @ 11, at 19[1941 1911941].)
"Though the idea of permanency is sometimes involved in the domicile concept, the term 'domicile'"domicile" is more safely defined in the negative rather than affirmative. A person's domicile is the place he is [*54] making his home not 'with' a present intention to remain there forever, but 'without' a present intention of leaving at some particular future time. (Siegel, Practice Commentary, McKinney's Cons. Laws of N.Y., Book 58A, SCPA 103, p. 21.)" (Matter of McKone v. State Tax Commn., supra, 490 NYS2d at 630.)
The importance of establishing intent was articulated by the Court of Appeals when, in Matter of Newcomb (192 NY 238), it stated: "No pretense or deception can be practiced, for the intention must be honest, the action genuine, and the evidence to establish both clear and convincing."
E. Judged by the foregoing standard, petitioner has proven by clear and convincing evidence that he established a new domicile in Australia in 1985. Preliminarily, it is recognized, and apparently not in dispute, that prior to his move to Australia, petitioner was a resident and domiciliary of New York City. Similarly, it does not appear to be disputed that petitioner resided in Australia in 1985. Therefore, the question of whether petitioner established a new domicile in Australia depends upon whether petitioner established the required intent. Further, it is the intent at the time of the [*55] move to Australia in 1985 which is determinative (see, Matter of McKone v. State Tax Commn., supra, 490 NYS2d at 630). Here, the business and personal facts support the conclusion that petitioner changed his domicile to Australia. At the time that petitioner left for Australia, Ocean Capital was sufficiently staffed so that petitioner's presence in New York was unnecessary. Moreover, Australia was the center of petitioner's business interests. The record shows that approximately 70 to 75 percent of the revenue of Ocean Capital was attributable to businesses with Australian clients and that all of Ocean Capital's Australian clients were brought to the company by petitioner. Once he arrived in Australia, petitioner formed a new corporation and acquired substantial office space. The new office space included a location for an office manager who gave up a good job to work for Ocean Australia. When petitioner was not traveling on business, the offices of Ocean Australia were very busily engaged in numerous large transactions. Petitioner's intent to be a domiciliary of Australia is further evidenced by his substantial investments in Australian real estate. In contrast, petitioner [*56] did not invest in any real estate in New York except for the house in Tuxedo Park.
In addition to the business considerations, petitioner has shown that his personal life centered on Australia. Petitioner met his first wife at a barbecue to which he had been invited by a friend in Perth. The record supports the conclusion that petitioner had a close relationship with his wife's family. When he arrived in Perth, he temporarily lived with his -38- brother-in-law while he searched for a place to live. Further, following his divorce and Mrs. Lepley's removal of the furniture from the house in Applecross, petitioner hired his ex-wife's sister to assist him in refurnishing the house.
During the years in issue, petitioner was a member of the Royal Perth Yacht Club, the West Australian Cricket Association, and the Perth Theater Trust. In contrast, petitioner did not belong to any New York clubs during the years 1985 through 1987.
In April 1985, petitioner leased a spacious house worth well over $ 1,000,000.00 in Applecross. Petitioner put a substantial amount of money into the house and ultimately persuaded the owner to sell the house in October 1987. Petitioner's hobbies included photography [*57] and music. The photographic equipment and state-of-the-art stereo were kept at the home in Applecross. Except for one change of clothes, petitioner also kept his clothes at his home in Applecross. Petitioner has also shown his attachment to Perth by his substantial investment in Australian commercial real estate including a shopping center worth approximately $ 9,500,000.00 in Australian dollars. In contrast, petitioner never invested in real estate in the United States other than the home in Tuxedo Park.
On the basis of the foregoing, petitioner has demonstrated through his activities that in 1985 he had the requisite intent to establish a domicile in Australia.
F. The arguments of the Division do not warrant a different result. The Division points out that petitioner went to Australia for the purpose of expanding Ocean Capital's business in Australia, that Ocean Capital provided [ILLEGIBLE TEXT] petitioner to relocate in Australia, and that the Board of Directors required petitioner to relocate in Australia "for not less than two years." As noted earlier, the necessary intention to acquire a new domicile is not the intention to remain at a particular location forever but the [*58] absence of an intention to leave at a particular time (Matter of McKone v. State Tax Commn., supra). The foregoing points do not show that petitioner intended to leave at a particular point in time when he first went to Australia. Contrary to the Division's argument, the fact that petitioner kept his New York driver's license has no probative value. In view of the fact that petitioner was required to make frequent trips to New York City, it would have been nonsensical for petitioner to give up his New York driver's license. The Division notes that petitioner kept his furniture in his New York City apartment. However, it is unrealistic to expect a person of petitioner's means to move furniture from a relatively small apartment to a large home halfway around the world. The fact that he retained his United States citizenship is also of no consequence since there is no basis "to require a taxpayer to give up his United States citizenship in order to prove . . . that he abandoned his New York domicile" (Matter of Bernbach v. State Tax Commn., 98 AD2d 559, 471 NYS2d 903,904).
The Division submits that petitioner continued to receive mail at the New York City apartment. However, [*59] most of the mail delivered to the apartment consisted of unsolicited advertising. The mail received at the New York City apartment was just a reflection of not notifying parties of a change of address. The Division has stressed the fact that petitioner visited physicians in New York City. However, it is more probative that his regular physician was in Perth. Some weight is also given to the fact that he underwent surgery in Perth. The Division argues that petitioner spent a considerable amount of time in New York City and attended events at places such as the ballet, opera and orchestra. However, the clear weight of the evidence is that petitioner's time in New York in 1986 and 1987 was spent on behalf of clients who were engaged in closings. Petitioner's presence in New York was also necessitated by his involvement in a hostile takeover in 1987 and by the need to resolve Ocean Capital's management difficulties. Under the circumstances, petitioner's presence at such events while in New York does not show an intent to maintain a New York domicile.
The Division contends that a New York domicile is shown by the purchase of the house in Tuxedo Park in 1987. However, this argument is [*60] undermined by the fact that shortly before petitioner purchased the house in Tuxedo Park, he purchased the house in Australia. It is noted that petitioner's purchase of the house in Australia is established by his credible testimony, the closing statement and the certificate of title. Under the circumstances, petitioner's testimony that he purchased the home in Tuxedo Park as a vacation home is accepted as credible.
The Division has accurately noted that petitioner had family ties to New York during the years in issue. However, this factor is counterbalanced by the fact that petitioner's wife's family ties were in Perth and that petitioner was apparently on good terms with at least some members of his wife's family. In this regard, it is noteworthy that petitioner's mother, father and sister spent Christmas of 1989 with petitioner in Australia.
The Division notes that petitioner did not pay income tax to either Australia or New York in 1986. Clearly, if petitioner had paid income tax in Australia in 1986 it would have been indicative of an intent to establish an Australian domicile. However, this one factor alone does not outweigh all of the other factors set forth above, which [*61] support an Australian domicile. Moreover, petitioner did pay "shire rates", which were village or town taxes and water rates, which were taxes to maintain the water system. Lastly, the Division focuses upon certain statements on the income tax returns which purportedly show a New York City domicile. For example, the Foreign Earned Income schedule for 1986 states that petitioner maintained a home in the United States while living abroad and that the home was an apartment in New York City. Other portions of the form state that petitioner resided in Perth, Western Australia from December 1, 1984 through December 31, 1986. The testimony in this matter establishes that petitioner did not prepare the returns or sign them before they were filed. Therefore, to the extent there is an inconsistency between the testimony and a statement on the tax return, it is concluded that the testimony is more accurate. It is also noted that, contrary to the Division's argument, since petitioner did not prepare the wage and tax statements, the address on the wage and tax statement does not constitute an admission that the income was earned in the United States. Moreover, the filing of a resident income [*62] tax return does not constitute an admission that petitioner maintained a permanent place of abode in New York during the entire 1987 tax year. Tax Law @ 605 does not state how long the place of abode had to have been maintained.
On the basis of the foregoing, it is concluded that petitioner was not a domiciliary of New York State or New York City in 1986 or 1987. Petitioner was also not a domiciliary of New York City in 1989. In addition to the factors previously outlined, it is clear that by this juncture the only residence in the United States to which petitioner had a personal attachment was the house in Tuxedo Park. Since petitioner acknowledges that he was taxable as a resident of New York State for the year 1989, there is no issue for New York State domicile for this year. In reaching the foregoing conclusion, it is recognized that there is evidence which indicates that, after the dissolution of his marriage in 1987, petitioner intended to abandon Australia and become a domiciliary and resident of Tuxedo Park, New York (see, Findings of Fact "122" and "125"). It is concluded that this evidence is not convincing because it is inconsistent with petitioner's actions. First, [*63] it is unlikely that petitioner would have immediately refurnished his Applecross home if he intended to resettle in New York.
Second, it is significant that petitioner did not move his personal belongings from his Applecross home to his Tuxedo Park home.
G. The next question is whether petitioner is taxable as a statutory resident of New York State for the year 1986 and of New York City for each of the years in issue. This, in turn, depends on whether petitioner maintained a permanent place of abode in New York State or New York City, respectively, and spent more than 183 days of the taxable year in New York State or New York City, respectively. (Tax Law @ 605[b]; Administrative Code of the City of New York former @ T46-105.0; @ 11-1705[b]).
H. Matter of Moed (Tax Appeals Tribunal, January 26, 1995) is instructive in determining whether petitioner maintained a permanent place of abode. In Moed the Tax Appeals Tribunal relied upon Matter of Evans v. Tax Appeals Tribunal (199 AD2d 840, 606 NYS2d 404) to devise the following four-part test to determine whether an apartment was maintained by the taxpayer as a permanent place of abode: (1) whether the petitioner had a property [*64] right in the apartment; (2) whether there is evidence of a shared rental; (3) whether the petitioner had free and continuous access to the apartment; and (4) the marital relationship between the petitioner and other users of the residence. Applying that analysis here results in the conclusion that the apartment at issue herein did not constitute a permanent place of abode. Initially, it is recognized that petitioner had a property right in the apartment. On the other hand, there is no evidence of a shared rental. Rather, the record shows that there was a financial arrangement between petitioner and Ocean Capital whereby Ocean Capital agreed to fully reimburse petitioner for the corporate apartment expenses. This arrangement was established in order to avoid difficulties with the rent control laws. Moreover, the record shows that petitioner did not have free and continuous access to the apartment. The testimony establishes that petitioner's access was limited because the apartment was used by clients of Ocean Capital. For a period of five or six months, it was also used by an employee of Ocean Capital. The last factor in Moed is not applicable.
I. It is also concluded that petitioner [*65] has established that he spent fewer than 183 days in New York State in 1986 and fewer than 183 days in New York City in 1986, 1987 and 1989. Initially, it is noted that, contrary to the argument in petitioner's reply brief, this is not an instance where counsel for the Division is raising an issue for the first time after the hearing. Rather, the issue was raised by the Division in its answer. This is sufficient to place the matter in issue and, since the petitioner has the burden of proof, the Division is not required to go forward on this point.
The Division maintains that, during the audit, petitioner failed to provide sufficient evidence to the Division establishing the days in and out of New York City during the audit years. It is further argued that petitioner did not offer any specific testimony on the day-count issue or quantify the days in and out of New York State and New York City. The foregoing argument is without merit. At this juncture, petitioner will be treated as if he spent fewer than 183 days in New York State or New York City if the evidence warrants such a finding regardless of whether such evidence was previously offered to the Division, (see, Matter of [*66] Avildsen, Tax Appeals Tribunal, May 19, 1994). Moreover, there is no requirement that a taxpayer offer testimony on each specific day during the audit period. The Division contended that the documents were not contemporaneous and were made for purposes of litigation. While the practice of making entries after the fact should not be condoned, a limited number of such entries does not render the day counts unreliable (see, Matter of Moss, Tax Appeals Tribunal, November 25, 1992).
The Division's brief proceeds to raise a series of specific objections to petitioner's diaries to show that they are unreliable. The Division states that the entry in the 1986 Financial Times Diary for February 6, 1986 through February 9, 1986 is "Pittsburgh" without any explanation. According to the Division, there is no entry for the period February 11, 1986 through February 23, 1986 yet petitioner's day count states that petitioner was in Pittsburgh on each of these days.
An examination of petitioner's day count shows that petitioner stated that he was in Pittsburgh from February 5, 1986 through February 23, 1986. The day count also shows the basis for this conclusion. The 1986 Financial Times Diary [*67] states "Pittsburgh" on February 5, 6 and 7, 1986. An arrow in the diary runs from February 6, 1989 through February 9, 1989. This entry was obviously sufficient to remind petitioner that he had travelled to Pittsburgh to negotiate the acquisition of Pittsburgh Brewing Company by Swan Brewery Company (see, Finding of Fact "30"). Petitioner's diary for February 11, 1986 lists the name "Bill Smith". The day count explains that this entry shows that petitioner was in Pittsburgh because the diary reflects a meeting with Bill Smith who was the recently retired president of Pittsburgh Brewing Company. The Financial Times Diary for February 24, 1986 lists an evening meeting with Susan and Armand Leone. Obviously, this was sufficient to advise petitioner that he was in New York City on this date. Further, it was reasonable for petitioner to proceed on the premise that he remained in a particular location until something showed a change.
The Division argues that while the day count states that petitioner was in England from March 2, 1996 through March 5, 1996, there is no corresponding entry in the Financial Times Diary. The foregoing argument does not show that there was an error in [*68] the day count. A miscellaneous charges order indicates that there was a flight on March 2, 1986. This is confirmed by petitioner's passport which has a stamp for Heathrow dated March 2, 1986. The passport also bears an Australian stamp dated March 6, 1986. Accordingly, there is sufficient support for the challenged entries in the day count.
The Division argues that the 1986 Financial Times Diary for the period July 21, 1986 through July 26, 1986 has a line across the page with no explanation of the meaning of the line and no backup documentation showing petitioner's whereabouts. The foregoing argument is also rejected. Petitioner's 1986 Financial Times Diary shows that on July 16, 1986 petitioner departed for London on a flight scheduled at 1:45 P.M. The next day reflects meetings with Tony Oates and Harold Shapiro of BLW in London. Adjacent to the date of July 21, 1986, the day count explains that the line in the New York appointment book signifies that petitioner knew that he would be in London. According to the 1986 day count, petitioner remained in London until July 27, 1986 when he returned to New York. The foregoing conclusion is supported by an arrow which is drawn through [*69] each day from July 21, 1986 until Friday, July 25, 1986. The appointment book next reflects a meeting on July 27, 1986, with a gentleman who was apparently located in New York. Presumably, the meeting prompted the comment in the day count that the appointment book reflects a return to New York from London.
The Division submits that most of the American Express receipts which were offered into the record to support the day count are illegible due to poor photocopying and that those that can be read contradict petitioner's day count summary. According to the Division, an American Express receipt shows that petitioner was in New York City on September 12, 1987 while the day count states that petitioner was in Milwaukee, Wisconsin on September 12, 1987. It is then noted that there is no description or explanation for the conclusion that petitioner was in Wisconsin on September 12, 1987. The proceeding argument is also without merit. Petitioner's day count for 1987 shows that there is an American Express bill for either a hotel charge or a restaurant charge in either Milwaukee, Wisconsin or Madison, Wisconsin on each day from September 11, 1987 through September 22, 1987 with the exception [*70] of September 12, 1987 and September 18, 1987 for which there is no backup documentation. Under the circumstances, it was reasonable for petitioner to surmise that he was in Wisconsin on September 12, 1987 since he was in Wisconsin before and after that date. The Division is correct that some of the American Express receipts are illegible. This, in turn, is the problem with the Division's argument concerning the September 12, 1987 receipt. While the receipt for September 12, 1987 mentions New York, it is not clear whether this is a reference to where a charge was incurred or just a printing of the New York City apartment address (see, the receipt for October 15, 1987, where the address of the New York City apartment appears on the receipt). The Division argues that petitioner's exhibit 1-51-AY, which consists of copies of cancelled checks, illustrates discrepancies between the supporting documentation and the day count summary for 1989. According to the Division, checks written to the New York City Ballet on October 12, 1989 and October 13, 1989, indicate they were for tickets purchased for ballet matinees on December 16, 1989 and December 17, 1989. However, the day count summary [*71] indicates that December 16, 1989 and December 17, 1989 are days in Australia.
Initially, it is noted that there are no checks dated October 12, 1989 and October 13, 1989 in exhibit 1-51-AY. However, even if such checks were in the record, it would not establish that the 1989 day count was in error. Petitioner's passport shows entry into Australia on December 13, 1989 and departure from Australia on December 28, 1989. Under these circumstances, petitioner's allocation of each day in between the foregoing two dates to Australia was reasonable and is accepted. It is also noted that each of the checks in exhibit 1-51-AY were signed by Ms. Maria Betulia who served as office manager of Ocean Capital New York. Therefore, the existence of checks for tickets to the ballet does not establish that petitioner was in New York on a particular day. Rather, the tickets could have been purchased for a client of Ocean Capital. The Division's remaining arguments concerning the day count are more general. It is submitted that the diaries, calendars and day count summaries are "incomplete, made for purposes of litigation, inconsistent, and should be given little weight." (Division's brief, p. 15.) [*72]
The foregoing arguments are also rejected. Here, petitioner provided credible testimony with respect to how the day count summaries were prepared. This testimony together with the documentation in the record consisting of diaries for each year in issue, American Express receipts and statements, credit card statements, telephone records, petitioner's passport, airplane tickets, an itinerary, bank statements and cancelled checks is sufficient to establish in a clear and convincing manner that petitioner did not spend 183 days in New York State in 1986 and 1987 or 183 days in New York City during each of the years in issue (see, Matter of Moss, supra). J. The Division argues that penalties were justified for failure to file a tax return for the year 1986 because petitioner was subject to tax as a resident of New York State and New York City. In the alternative, the Division argues that, even if petitioner were a nonresident, he earned money in New York City on business in 1986 and therefore he should have filed a tax return in which he paid tax on all of his New York source income. K. The question of whether petitioner is subject to tax as a resident of New York City or New York [*73] State has been resolved in petitioner's favor.
With respect to the alternative argument, petitioner maintains that the issue of allocation of wages may not be raised for the first time in the Division's brief. Preliminarily, it is recognized that the raising of new factual issues after the record is closed is not permitted because it deprives the party which bears the burden of proof of the opportunity to present evidence (see, Matter of Howard Enterprises, Tax Appeals Tribunal, August 4, 1994; Matter of Sandrich, Tax Appeals Tribunal, April 15, 1993; Matter of Consolidated Edison Co. of New York, Tax Appeals Tribunal, May 28, 1992).
Tax Law former @ 632(a), in effect in 1986, provided that the New York source income of a nonresident individual shall be the sum of the net amount of items of income and gain entered into the Federal adjusted gross income "derived from or connected with New York sources." Tax Law former @ 632(c) provided that: "if a business, trade, profession or occupation is carried on partly within and partly without this state, as determined under regulations of the tax commission, the items of income, gain, loss and deduction derived from or connected [*74] with New York sources shall be determined by apportionment and allocation under such regulations." 20 NYCRR former 131.18(a) provided that where a nonresident employee or corporate officer performs services on behalf of his employer both within and without New York State, the: "income derived from New York State sources includes that portion of [the] total compensation for services rendered as an employee which the total number of working days employed within New York State bears to the total number of working days employed both within and without New York State.
It is clear from the foregoing that the issue of allocation of wages is factual. When the issue is properly raised, a taxpayer has an opportunity to present evidence as to the number of days worked in New York and the total number of days worked in the year (see, Matter of Dubin, Tax Appeals Tribunal, April 21, 1988). Here, since the issue was not raised until the post-hearing brief, petitioner was deprived of an opportunity to present such evidence.
Therefore, petitioner's argument that the Division should not be permitted to raise the issue of allocation of wages is accepted and the position will not be [*75] considered. L. The Division argues that penalties were properly imposed for failure to file a New York income tax return for 1986 and for negligence and substantial understatement for 1986, 1987 and 1989. Since it has been concluded that petitioner was neither a domiciliary nor statutory resident of New York State and New York City during the respective years in issue and that the issue of allocation of wages may not be raised for the first time in a post-hearing brief, there is no deficiency of tax upon which to impose a penalty.
Therefore, the issue of penalties is moot. The petition of James B. Lepley, Jr., is granted, and the notices of deficiency dated August 31, 1992, August 18, 1994 and September 9, 1994 are cancelled.
Use your browser's "back" button to return to the text.