Use your browser's "back" button to return to the text.Matter of SCHIBUK
DTA NO. 815095; TSB-D-99(11)I; Income Tax
STATE OF NEW YORK-TAX APPEALS TRIBUNAL
May 6, 1999
OPINION:
We first address the question of whether or not petitioners were properly taxable as residents of New York State for 1988. Tax Law @ 605(b)(1) defines a "resident individual" to include an individual: (A) who is domiciled [*27] 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 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. . . .
While the Tax Law does not contain a definition of "domicile," the Division's regulations (20 NYCRR former 102.2[d]) provided, in pertinent part, that a "domicile," in general, is the place which an individual intends to be his permanent home. Further, once established, a domicile "continues until the person in question moves to a new location with the bona fide intention of making his fixed and permanent home there" (20 NYCRR former 102.2[d]). The burden of proving this intention is upon any person asserting a change of domicile to show that the necessary intention existed. While a person can have only one domicile, he may have two or more homes. In this regard, a person who maintains a permanent place of abode in New York State and spends more than 183 days [*28] of the taxable year in New York State is taxable as a resident even though he may be domiciled elsewhere.
In the present matter, there is no dispute that at least until June 1988, petitioners were domiciled in and residents of New York State. Based on the evidence presented, the Administrative Law Judge concluded that petitioners changed their domicile to Vermont in September 1988. The Division has taken no exception to this conclusion and, therefore, we accept the conclusion of the Administrative Law Judge that a change in domicile took place.
Petitioners, however, argue that they changed their domicile in June 1988. Notably absent in support of petitioners' argument is testimonial evidence by petitioners or affidavits to explain the significance of the documentary evidence or how it demonstrates that petitioners intended to change their domicile in June 1988. Thus, the documents presented must speak for themselves. After reviewing these documents, we find nothing in the record before us that would cause us to modify the Administrative Law Judge's conclusion that petitioners changed their domicile in September 1988. In this regard, we note that petitioners submitted a letter with [*29] their reply brief to the Administrative Law Judge which was intended to be made part of the evidentiary record in this proceeding. The Administrative Law Judge rejected this letter. Petitioners have resubmitted this letter with their exception herein and it is likewise rejected. It is clear to us from the correspondence sent to the parties by the Administrative Law Judge that each party was advised that they had a certain date by which to submit documentary evidence for consideration. While these dates were subsequently amended, there is no indication that the time for submission of documents was left open-ended by the Administrative Law Judge.
As we stated in Matter of Schoonover (Tax Appeals Tribunal, August 15, 1991): In order to maintain a fair and efficient hearing system, it is essential that the hearing process be both defined and final. If the parties are able to submit additional evidence after the record is closed, there is neither definition nor finality to the hearing. Further, the submission of evidence after the closing of the record denies the adversary the right to question the evidence on the record. For these reasons, we must follow our policy of not allowing [*30] the submission of evidence after the closing of the record.
At the time petitioners submitted their reply brief to the Administrative Law Judge, the record in this matter was closed. Thus, we affirm the Administrative Law Judge's conclusion that this letter should not be included as part of the evidentiary record in this proceeding. In any event, whether the change of domicile took place in June, as argued by petitioners, or in September, as concluded by the Administrative Law Judge, petitioners are still taxable as residents on their 1988 income. As the Administrative Law Judge pointed out, "although it has been determined that petitioners changed their domicile from New York to Vermont, they would be properly assessed herein if they both maintained a permanent place of abode in New York and spent in the aggregate more than 183 days there during the year in issue (Tax Law @ 605 [b][1][B])" (Determination, conclusion of law "G").
A "permanent place of abode" is defined 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." Based on [*31] the date of sale of their Armonk, New York home on December 23, 1988, the Administrative Law Judge properly concluded that petitioners maintained a permanent place of abode in New York through that date.
As the Administrative Law Judge also noted, petitioners submitted no evidence on the issue of whether or not they spent less than 183 days in the State of New York, a matter on which they clearly bore the burden of proof (Matter of Kornblum v. Tax Appeals Tribunal, 194 AD2d 882, 599 NYS2d 158; Matter of Smith v. State Tax Commn., 68 AD2d 993, 414 NYS2d 803; see also 20 NYCRR former 102.2[c]). Thus, irrespective of when petitioners changed their domicile from New York to Vermont during 1988, petitioners were properly taxed as residents of New York State for 1988 pursuant to the alternative definition of a "resident individual" provided by Tax Law @ 605(b)(1)(B). Having decided that petitioners were properly taxable as residents of New York State for 1988, we must now decide whether petitioners were required to accrue the payments they received in 1989 and 1990 from CRP as part of their taxable income for the year 1988.
Tax Law former @ 638(c) provided, for the [*32] period at issue, that: (1) If an individual changes his status from resident to nonresident he shall, regardless of his method of accounting, accrue to the portion of the taxable year prior to such change of status any items of income, gain, loss or deduction accruing prior to the change of status, if not otherwise properly entering into his federal adjusted gross income for such portion of the taxable year or a prior taxable year under his method of accounting.
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(3) No item of income, gain, loss or deduction which is accrued under this subsection shall be taken into account in determining New York adjusted gross income or New York source income for any subsequent taxable period. The regulations under 20 NYCRR former 148.10(a) stated, in pertinent part: Where the resident status of an individual . . . changes from resident to nonresident, such individual . . . must, regardless of the method of accounting normally employed, accrue and include, on the New York State income tax return and any schedule require [sic] to be filed with such return for the portion of the year prior to the change of resident status, any items of income, gain, loss or deduction (and any New York [*33] items of tax preference) accruing prior to the change of residence, if not otherwise properly includible or allowable for New York State income tax purposes or New York State minimum income tax purposes for such portion of the taxable year or for a prior taxable year. That is, in computing New York State taxable income, New York personal service taxable income and New York State minimum taxable income for the resident period, such individual . . . must include all items required to be included if a Federal income tax return were being filed for the same period on the accrual basis, together with any other accruals such as deferred gain on installment obligations which are not otherwise includible or deductible for Federal or New York State income tax purposes or for Federal or New York State minimum income tax purposes either for such resident period or for a prior taxable period. . .
.Pursuant to Tax Law former @ 638(c), the Division accrued to 1988 the amounts received by petitioners from CRP in 1989 and 1990. Whether this accrual was appropriate depends on the nature of the payments made by MP to CRP. In this regard, we have only documentary evidence to rely on. The Memorandum [*34] Agreement provides, in paragraph "1" thereof, that CRP sells and MP purchases the 10% interest in MP owned by CRP. The purchase price is $ 4,000,000.00. Of this amount, $ 1,000,000.00 is allocated to CRP's capital account in MP and $ 3,000,000.00 "shall be paid [to CRP] as a guaranteed payment" with payment terms and conditions to be the same as specified in another agreement not in evidence herein.
Petitioners argue that "guaranteed payment" is a term of art relating to partnership taxation. Section 707 of the Internal Revenue Code, entitled "Transactions Between Partner and Partnership," provides, in paragraph (c) thereof, that "guaranteed payments" by a partnership to a partner for services or the use of capital shall be considered as made to one who is not a member of the partnership for purposes of section 61(a) and, subject to section 263, for purposes of IRC @ 162(a). Thus, "guaranteed payments" are payments made to a partner not in his or her role as a partner. However, designating that a portion of the purchase price is to be paid as a guaranteed payment does not automatically qualify it as such.
Guaranteed payments under IRC @ 707 are made by a partnership to a partner. [*35] Petitioners do not explain how MP could make guaranteed payments to an entity that had ceased to be a partner. Guaranteed payments are paid for services or the use of capital. The terms of any agreement for services to be rendered by petitioners to MP are not part of the record of this proceeding.
Additionally, it appears that characterizing part of the purchase price as a guaranteed payment contradicts the provisions of IRC @ 741. That section provides, generally, that gain or loss on the sale or exchange of a partnership interest shall be considered as the gain or loss from the sale or exchange of a capital asset. Guaranteed payments, however, are considered ordinary income to the partner receiving them (Reg. @ 1.707-1[c]).
However, we cannot emphasize the importance of petitioners' failure to provide adequate, competent and clear evidence in support of their position on audit or before the Administrative Law Judge. Petitioners bore the burden of demonstrating that the Division's conclusion, that the 1986 sale price was $ 4,000,000.00 and not $ 1,000,000.00, was incorrect (Tax Law @ 689[e]). Although paragraph "10" of the Memorandum Agreement specified that "80% of the deferred payments [*36] under this agreement shall be contingent on Norman Schibuk's compliance with the terms of the provisions of Articles (A)(3) and 7(B) of his employment agreement," that employment agreement was never made a part of the record. In fact, at least one page of this handwritten agreement was omitted. It was incumbent on petitioners to prove that $ 3,000,000.00 of the $ 4,000,000.00 purchase price was not consideration for the sale or exchange of CRP's partnership interest in MP. This they failed to do. Without further documentation concerning the 1986 sale by CRP to MP, we conclude that petitioners were required to accrue as part of their New York State taxable income for 1988 the balance of their share of gain resulting from the 1986 sale by CRP of its interest in MP. As for petitioners' argument that penalties were inappropriately imposed, we disagree. Petitioners were under an obligation to file a resident return for 1988. They did not do so. Tax Law @ 685(a)(1)(A) states that: in case of failure to file a tax return under this article on or before the prescribed date (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable [*37] cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return five percent of the amount of such tax if the failure is for not more than one month, with an additional five percent for each additional month or fraction thereof during which such failure continues, not exceeding twenty-five percent in the aggregate. Tax Law @ 685(b)(1) states that "if any part of a deficiency is due to negligence or intentional disregard of this article or rules or regulations hereunder (but without intent to defraud), there shall be added to the tax an amount equal to five percent of the deficiency." Petitioners have been assessed penalties pursuant to Tax Law @ 685(a)(1) for their failure to file a New York State tax return for 1988 and pursuant to Tax Law @ 685(b) for negligence.
We agree with the Administrative Law Judge that petitioners have failed to submit any evidence to establish reasonable cause for the waiver of penalties. We agree with the Administrative Law Judge that petitioners were properly assessed penalties.
Accordingly, it is ORDERED, ADJUDGED and DECREED that:
1. The exception of Norman and Enid Schibuk is denied;
2. The determination [*38] of the Administrative Law Judge is sustained;
3. The petition of Norman and Enid Schibuk is denied; and
4. The Notice of Deficiency dated March 31, 1994, as modified in accordance with conclusion of law "K" of the Administrative Law Judge's determination, is sustained.
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