New York State Updates Nonresident Audit Guidelines
The New York State Department of Taxation and Finance recently revised its Nonresident Audit Guidelines for the first time in seven years. This updated version, issued in December 2021, replaces the guidelines that were issued in June 2014.
Overview: The Nonresident Audit Guidelines were established by the New York State Department of Taxation and Finance to ensure uniformity and consistency in the examinations of nonresident returns and explain the tax law and regulations relating to residency, discuss audit policies and procedures, and address various technical issues and complex issues through examples and explanations. While the Nonresident Audit Guidelines are without legal force or effect, they are generally binding on New York State audit staff who are expected to follow the rules and procedures set forth in the guidelines when conducting an audit. As such, they provide a useful basis for challenging aspects of a personal residency audit, and a useful indicator of what facts and circumstances an auditor will consider determinative in a residency audit.
Changes Made by 2021 Guidelines: While most of the changes made by the December 2021 guidelines (“2021 Guidelines”) to the June 2014 guidelines (“2014 Guidelines”) were minor grammatical and typographical changes, the 2021 Guidelines do contain one significant change to the statutory residency rules. In general, a person is deemed to be a statutory resident of New York State if the person maintains a permanent place of abode in New York State and spends more than 183 days of the year in the state. For statutory residency purposes, a person maintains a permanent place of abode in New York State if that person retains such abode for “substantially all of the taxable year.” State of N.Y. - Dep’t of Tax’n and Fin. Income Franchise Field Audit Bureau, Nonresident Audit Guidelines (2021).
The 2014 Guidelines provided that as a general rule “substantially all of the taxable year” meant a period exceeding 11 months. State of N.Y. - Dep’t of Tax’n and Fin. Income Franchise Field Audit Bureau, Nonresident Audit Guidelines (2014). The 2021 Guidelines provide that beginning in tax year 2022, “substantially all of the year” generally means a period exceeding 10 months. State of N.Y., Nonresident Audit Guidelines (2021). The 2021 Guidelines further provide that the 10-month rule “will” be applied in tax years in which a taxpayer either acquires or disposes of a residence. Id. The 2021 Guidelines explain that this means that the 10-month rule would not apply, for instance, where a taxpayer rents out his upstate New York home for a few months each summer. In that case, the taxpayer would still be determined to be maintaining a permanent place of abode since the rental did not occur during the year of acquisition or disposition, and it was available for use on a regular continuing basis except for occasional short-term absences such as short-term rentals. In contrast, the 2014 Guidelines provided that the 11‑month rule will “generally” be applied to years where the taxpayer acquires or disposes of a residence. State of N.Y, Nonresident Audit Guidelines (2014).
Takeaway: New York State maintains an active residency audit program, and the changes to the Audit Guidelines lessen the threshold at which statutory residency status may be triggered. It is therefore important that persons who are planning to acquire or dispose of a residence in New York State, or who have recently done so, make sure that they are aware of all of the rules and tests applied by the Department in determining residency so that they can plan accordingly.
This article is one in a series of articles written for the March 2022 edition of The BR State + Local Tax Spotlight.