If you’re considering moving out of NYC in order to maximize your assets and plan for your financial succession, you’ll want to start planning early to get the full benefit.
In this webinar, we’ll cover the overall financial logistics of the move as well as pieces that should be addressed well in advance including:
- Proof of residency/domicile
- Tax implications & planning tips
- How far ahead you should start prepping
- And more!
Read transcript below:
Amanda: Hi. We'd like to welcome everyone to today's webinar Financial Planning and Considerations When Moving Out of NYC which is New York City. For those of you that haven't used GoToWebinar, just a little bit of housekeeping. One of the biggest things is the questions section. We're going to be taking questions at the end. We know that there's a lot to cover. We have some questions that we've received in advance that we'll go over. But if there's any specific question that you have, feel free to type that in and we'll be monitoring that throughout the webinar and we'll try to get to as many of those during the Q&A portion that we can.
To introduce who we have as panelists today. We have Ted Byer, Head of the Licensed Certified Public Accountant in New Jersey with over 30 years of experience in public accounting and tax. We also have James DiNardo today as our guest. Jim is a Wealth Management Advisor with Northwestern Mutual Wealth Management Company and a member of Pioneer Financial. And we also have Henry Rinder who's with Smolin. Henry is a Licensed Certified Public Accountant in New Jersey and New York with more than 30 years of public accounting experience.
And with that we'll go over to our agenda for today. We'll kick things off with Henry.
Henry Rinder: Good morning everyone. We have a very nice panel for you and the area is definitely of grave concern to a lot of people because of COVID. Jim, perhaps you can address it from your perspective as you're getting a lot of calls from your clients, and tell us what are those areas of concern. Jim?
James DiNardo: Sure. Sure. We're just getting questions all the time from clients who have left New York City, maybe had a primary home in New York City and as a result of what's going on in March picked up and went to secondary homes, went to rental homes, anywhere from staying in the state of New York, going to New Jersey, have a decent amount of clients with beach houses down there, going to Connecticut, going to Florida. We have one client who actually went to Canada.
So the questions to Henry and Ted, what obligations do they have from an income tax standpoint to New York City, what obligations have been relieved potentially to New York City as a result of March, around March 13th picking up and going? And kind of a softball is what defines proof of residency, either Henry or Ted, and what are the tax implications of that?
Henry Rinder: So what's basically our agenda Jim, that's basically our agenda and we'll go to the next slide, and Ted, perhaps you can pick from the second slide and start off by talking about what constitutes for tax purposes the idea of domicile and what are the five prime primary factors that are usually defining what domicile is. Ted?
Ted Byer: Sure. Happy to do so. Good morning everyone. New york state and New York City have five primary factors that they look at to determine whether someone is domiciled in the state of New York or not. The first one is their home. And that's very subjective. If a taxpayer has two homes, perhaps an apartment in New York City and a shore home at the Jersey Shores, Jim gave an example, I mean they're going to look at the seasonality, the size, the value, and things of that nature determine which is their primary residence.
Now, none of these factors that we're going to go over are going to be etched in stone. As I said, they are very subjective. So if you have one house that's worth $2 million and another house that's worth $1.7 million, by default your $2 million house is not your primary residence. But if you have one that's worth $2 million and one that's worth $150,000, then maybe so.
The second factor is going to be your active business involvement. Again, if you have your business is in New Jersey, you have a vacation house in New Jersey but you also have an apartment in New York, New Jersey's going to get a little more weight. The other token which we'll talk about a little bit later when we talk about tax consequences is that if your business is in New York but now you've moved to New Jersey, is your business income still subject to New York state tax and New York City tax, and we'll discuss that in detail in a few minutes.
Time is the third factor. Everybody hears about the 183 day test. You got to spend 183 days somewhere to determine your residency. Yeah, that's a big factor. Time is huge. We can talk about that in detail. But yes, if you're spending more than 183 days somewhere, chances are you are a resident there. Now, you could be a part-year resident. Somebody could have decided to move out of New York July 15th and therefore they were in for 183 days. All that means is their residency stops on July 15th and they just start a part-year residency somewhere else. The time is a very important factor.
Closer connection is the fourth factor. That would be where's the family heirlooms, where's the artwork and the jewelry, where is country club, religious affiliation, all that good stuff, where's the closer connection.
And lastly is family connections. Where's your spouse and where's your minor children? Can't say, "Well, I went to New Jersey because I was scared of COVID, but I left my wife and children at the New York apartment." That's probably not going to work. So that's the fifth of the primary factors. There's also quite a few secondary factors that I'll let Henry speak about.
Henry Rinder: When it comes to secondary factors, obviously there is sort of the whole fabric of what constitutes where you live and what constitutes what is defined as residency for purposes of taxation. So when we look at the secondary factors, we are looking for additional evidence that your home that you want to consider basically a residence for tax purposes is in fact that.
Ted already mentioned social connections, religious, country club. I would add to it things like political involvement and voter registration, driver's license registration, where are your cars registered, where's the location of your primary doctors, where's your lawyer, where are your accountants. I call it the support circle. Obviously there's this idea of what's close and dear to your heart, like Ted already mentioned, your artwork, your collectibles, where is your safety deposit box, and so on.
So when we look at these factors, and frankly there's a huge body of knowledge in a decisional law that addresses it, and it's not just in New York but it's frankly ... There is a huge body of law in New Jersey, Connecticut and all the states that have issues with residents kind of dealing with the change of domicile as a taxation event.
But I also wanted to kind of go back to the fact of the primary factor which was the number one factor which is the factor sort of home and how it connects to something called intent. Because when you look at the case law, when you look at the way the judges rule on these items, they often deal with the what is the intent of the individual? Is the intent of the individual to actually use this particular location as their home, and what does that mean? And usually it's defined as something that's home is permanent, it's fixed, it's used as a principal residence, and the taxpayer, it is clear that the tax paying tends to remain in it and return to it. So whenever the taxpayer goes away on vacations, on business trips, this is the place that the taxpayer would return to. And the intent is often mentioned in the cases obviously when we deal with issues of residency.
Now, I wanted to go back to the second factor that Ted mentioned which is the factor of time. And the factor of time finds itself in other definitions of domicile because we have sort of a decisional law on residency and then we have a statutory residency that actually is codified into different states laws. And in New York we run into this issue on a very frequent basis.
It usually is triggered by a non-New York resident who actually has a home, some form of residency in New York or New York City that is used less frequently than a primary residence, but because of that location, the time becomes a major issue because if it can be established by the state of New York that a taxpayer is actually physically in New York state or New York City for 183 days, it's a given, it's almost a given that that taxpayer will be considered statutory resident for New York purposes, which creates other issues because then you have actually issues with two taxes claiming a taxpayer's residence. And we run into, Ted and I run into this kind of issue on a regular basis, something I wanted to bring up.
Let's go to the next slide. And Ted, if you could perhaps address some of the tax implications from what we are describing as to residency determinations.
Ted Byer: Sure. Thank you Henry. Let's go over a couple things not necessarily in the order of the bullets that are up on your screen right now. So let's assume you've dotted all your Is, crossed all your Ts, and you've got yourself out of New York state let's just call it or even New York City. Well, let's say New York state and you moved to New Jersey or Connecticut, and now with COVID you are telecommuting, as I am, sitting in my home office right here. I'm now a resident of New Jersey, not of New York. Certainly all your unearned income, your interests, your dividends, your capital gains, and all of those goodies will all be taxed to New Jersey now since you're no longer resident of New York.
However, if I'm telecommuting for a New York-based employer, New York will say that my wages, my earned income are still subject to New York state taxes. If I could use one of my clients as an example. I have a client who lives in Tennessee. They never set foot in the state of New York. However, they work for a New York state or in this case New York City-based company, but do all their work remotely from Tennessee. New York, they still must pay New York tax on those wages. Unfortunately or fortunately Tennessee does not have an income tax so they don't get a credit on the other side. So that's really a bad answer for that. In my situation or the situation I gave where I'm in New Jersey, I would take a credit in New Jersey for any New York taxes paid to help alleviate some of that double taxation.
Now New York City however, and this is a big one, New York City does not tax non-residents. So if I was a New York City resident and moved out of the city but continued to work for a city employer, I would not be subject to the 4.5% New York City wage tax. I'd only be subject to New York state taxes. So that's very, very important to know.
Let's talk about principal residence. I have an apartment in the city of New York. I move to Connecticut and I decide that I don't ever want to go back to New York City so I am going to sell my principal residence, my apartment. A couple things. Number one, if you're a non-resident on the date of that sale, it will be subject to withholding tax or closing. There's a form you need to fill out. You calculate your gain. You have taxes withheld, and now you file your tax return. But the key to remember as you all know on the sale of your principal residence, if you're married filing jointly, you get a half a million dollar exclusion. You don't need to sell the residency the day you become a resident of another state. As long as that original place was your primary residence for two out of the past five years, you still qualify for that $500,000 exclusion, 250 if you're single.
So that's key. I have a lot of questions about that all the time. People are nervous if they're leaving and it might take them a year to sell their apartment, will they still qualify as a principal resident? Yes, if they meet that two out of five year test.
As I alluded to before, there is part-year resident status. I moved out of the city on March 15th, but I did everything. I'm no longer a city resident. I still need to pay city tax up until March 15th and then I'll be considered non-resident thereafter. Henry, would like to add anything?
Henry Rinder: Yeah. I would love to jump in. One of the issues that we are seeing, and frankly Ted is more on a compliance, I'm on a controversy side. Although Ted also does audits and so on with the state and the city, I do quite a bit of that, and usually it's quite controversial. For example, Ted's example of the Tennessee client. I know I've seen narratives on this very topic suggesting that if this is not for the convenience of that person, if that person was hired as a resident of Tennessee, the narratives that I read would suggest that actually that client's wages from New York should be exempt. That's not to say that New York state would agree with that. It's just simply writings by various tax experts in this area.
And the issue is what triggers that taxation in New York. And one of the narratives I read was that if you're physically present in New York for one day, that would trigger it. But if you've never been in New York, if you'd never put your foot in the state of New York, perhaps there is a way out of that, which brings also the issue of convenient ... Go ahead.
Ted Byer: Yeah, just originally they were a New York resident years ago. Then when they moved out their old account [inaudible 00:17:34] thankfully, just cut them off from New York. That's what triggered the audit. And they were already in New York.
Henry Rinder: So interestingly enough obviously that's what the state of New York uses as a trigger. And frankly, that's another thing that we see in controversy which is New York considers New York residents who then move out of New York still New York residents no matter what. Once a New Yorker, always a New Yorker. And that's the attitude. That's what you got to deal with. But I want to circle back to a couple other things.
In this telecommuting world because of COVID not everybody is on a W-2, and some of them are contract employees that used to work in the city and now moved out because of COVID and they may be in some residence in New Jersey or Connecticut and they've been working since March out of New York. And my question to Ted because I'm dealing with a case on unincorporated business tax side where the city is pretty aggressively trying to collect from these contract, what I would consider contract employees, UBT tax. Ted, what are your thoughts on that?
Ted Byer: Well, with UBT in particular you really need to look at economic nexus, the new rules of economic nexus which was determined under the Wayfair vs South Dakota case a few years ago. If the economic benefit enrolls to New York, I would think that New York definitely has a position to assess tax in that situation. Now obviously there are some ... the minimum thresholds that we can look at each state is different, but if there is ... on their economic nexus I think New York would have a leg to stand on if they decided to pursue that matter.
Henry Rinder: Understood. I want to circle just to the final comment on this before we go to questions is this source income issue and convenience versus necessity of employer. And the issue is this. New York state actually has a statutory right, they have a law on the books that taxes New York source income to the recipient, which is why some of this body of law has evolved the way it has evolved. So in a telecommuting world when you have a person that for example lives in New York, decides to move to Florida, now has an apartment in Fort Lauderdale and is continuing to provide services for the former employer or the current employer, frankly it could be a W-2 or independent contract arrangement from Florida, and they did it because they decided to move out of New York and the employer was willing to adapt to that and still leave the person in the employee.
The way the New York state looks at it is that that move has been done for the convenience of the employee not the employer, and therefore it's taxable in New York as a source income from New York. Now, if the employer tells the employee to go and build a pipeline in Alaska for example and the employee then moves to Alaska for six months or a year, under that standard the directive is basically a directive from employer and therefore the move is because of necessity of employer and therefore the income earned in Alaska would not be subject to New York state. That's the distinction I wanted to draw on a convenience versus necessity. Ted, anything that you would like to add to it?
James DiNardo: Hey Henry. Jim here.
Ted Byer: I agree 100%.
James DiNardo: Real quick, Jim here, and the bigger issue, the biggest issue with that and correct me if I'm wrong in thinking about it this way, convenience versus necessity, no one really understands or knows how the IRS is going to consider COVID. Is COVID a convenience or a necessity causing employees not to be in New York City or not?
Henry Rinder: So I'm glad you brought this up Jim because if you follow the political scenery, there have been attempts to clarify this issue both on a federal level, as well as the state levels. And frankly I got to say it's still very fluid. It's not clear to us. In a perfect world, I think things would be status quo. For example, somebody that has moved in with the in-laws from New York City and worked since March in New Jersey, in a perfect sort of outcome if this is just temporary and it's because of COVID mandates, I would think that you would leave everything status quo and New Jersey would not tax that income.
But we are not in a perfect world and we don't know exactly what's going to happen. There's a chance that states that have these employees working there will go after that to consider that income to be earned in their state, just as theoretically New York would have done. Ted, what are your thoughts?
Ted Byer: Yeah, again, I agree 100% Henry. It's new. Everything I read it's going to be brought up in legislature. When, who knows? All we have to go on is existing law. And under existing law there's no COVID exception. I mean, if they come up with one, I think it would be wonderful, but I for one will not hold my breath waiting.
James DiNardo: So let's talk about a couple of examples then. Let's take ... I'm going to kind of ... We won't guarantee you guys answers on this. You guys aren't judge and jury on this, but somebody lives in New York City and leaves New York City. Based on the five domicile issues has a home elsewhere, had a home before, and has decided to make that home their permanent residency. They have 183 plus days out of New York City. They're creating a closer connection. They're creating family connections or they already have family connections. They may in fact even have cars registered let's say to Connecticut or to New Jersey. They may in fact be voting there.
Just for the New York City income tax, just the New York City income tax, do you feel like they are on the safer of grounds to make the claim that they are in New Jersey or Connecticut or said differently not a New York City resident if they did all of those?
Ted Byer:
Yeah, a couple things. Number one, they'd be a New York City resident up until the date that they actually moved out of New York City. So they'll be a part-year resident.
James DiNardo: Mm-hmm (affirmative).
Ted Byer: And yes. I think under those facts and circumstances, and as you said their intent is not to return to New York City, so I'm assuming they're doing something proactive to dispose of their New York City apartment, then yes, I think they would have dotted the Is and crossed the Ts to do what they needed to do to avoid New York City tax after the date of residency shift.
James DiNardo: And if you were their accountants, you would also tell them you'd put a big disclaimer that says what in terms of does this increase, decrease, not an issue in terms of additional audit concerns by New York City?
Ted Byer: Anytime you have a change of residency status, and I don't care if you change from Iowa to Kansas, you increase your risk of audit, because anytime you leave a jurisdiction, that's revenue out of that jurisdiction's pocket, which is going to increase the chance of audit.
James DiNardo: Okay. The questions we're fielding from clients, those are the two. I have another. Kevin and Steve, you guys are on the call as well. If you guys are hearing any other significant questions from clients, those are the two that I'm hearing all the time, is what happens with the New York City income tax and what are the increases or decreases of an audit upon changing, making any significant changes?
Henry Rinder: Jim, if I could jump in, I wanted to address this in a little more detail. There's actually a couple of factors that are considered in cases when you have to actually prove that you change your residence. So I want to mention those three factors actually.
The first one is abandonment of a prior home. Obviously with COVID it's not so easy. It's gray. You cannot get a moving truck necessarily to move your stuff out and so on. But to Ted's point, I think he mentioned that, what are they doing about the old co-op or condo? Are they going to be prepping it for sale by moving it to the new location?
Obviously the second factor is, did they physically move to the new home, which based on your example Jim, they did. And then finally, something that actually comes as a benefit of the hindsight which is what was the intent of the taxpayer? Was it to remain in the new residence or are they going back to the New York City co-op once this is all over? And that will have the benefit of the hindsight.
Just filing as a non-resident in New York City I think is the right answer if the taxpayers feel confident that they will meet these factors. And I think it's something that I would advocate for. I mean, it's pretty clear. Now, the question still remains though, what happens with the old co-op? If they go back in a couple years and stay in New York and then they get audited, it's going to be challenging to overcome the idea that they never intended to leave. You follow?
Ted Byer: Mm-hmm (affirmative).
Henry Rinder: But if they actually move those social circles, if they move the support circle, the family and the family stays in new schools and the family stays in the new residence, I think that that's a very, very solid argument. If the money is significant, you have to expect that this is going to be audited. You have to expect that, because you already have political issues happening with the cap on the real estate tax deduction, right? So when that happened, when the tax deduction got limited to $10,000 and people are paying a lot more in income tax and real estate taxes, people slowly started drifting away from New York and New Jersey and Connecticut, just in the tri-state.
And when that happened, the Division of Taxation and Department of Revenue, they went on a record that they will go after the people that are leaving the state to make sure that this is up and up and this meets the true change of domicile intent. And I think Ted, was New Jersey I think was on the record that anybody that made more than a million dollars, was that ... Do you recall what was that standard? I mean, they actually published the standard that they're going to go after everyone that met some specific threshold. Ted, do you remember what it was?
Ted Byer:I don't remember the exact amount, but I do recall hearing that. And obviously with New Jersey with the passing of the new millionaires tax, clearly they're going to go after anybody who earns more than a million dollars.
James DiNardo:Yep. Right.
Henry Rinder: The other thing I wanted to add to the conversation Jim, I wanted to add one other thing to the conversation that we kind of omitted.
James DiNardo: Mm-hmm (affirmative).
Henry Rinder: If you have your primary office, your headquarters in New York City, the question also has to be asked whether you have satellite offices. Do you have offices that are out of state offices? Because when you do, that changes the narrative, because you can actually ... Your employer can move you to out of state office and you can work over there and that income is no longer originated from New York state and New York City.
James DiNardo: So Henry, that's a really good ... That's a really, really good point and probably relevant to this call. I'll use an example. You work for a big investment bank whose headquarters is in New York. COVID takes you to the beach towns in Connecticut or the beach towns in New Jersey. There is in fact a satellite office. A lot of these places have backup offices. You're saying, and let's say that Connecticut is much lower than New York in state income tax which isn't quite the case, but they would be subject to, just to Ted's point earlier, however long they were in New York commuting into New York be subject to the New York tax, but then, when they left to go to Connecticut, let's say it's for 200 days, be then subject to the Connecticut income tax assuming the satellite office is there or at least have a stronger case.
Henry Rinder: Definitely would be a stronger case and you want to have change of residency and a change of place of employment, and you would want your investment bank, the employer to give you a directive to go to that office. I think that those would be bits of evidence that you would want to have in your file.
James DiNardo: Yeah, and that's all true, true, and true. All true, true, and true.
Ted Byer: Yeah, I would definitely think you would go to HR and tell them that they need to change in their personnel records that you're now assigned to the Connecticut office as opposed to the New York office. So that if you were audited, you could get a third-party document from your employer showing your change of employment from a New York employer to a Connecticut employer.
James DiNardo: Right. Right.
Henry Rinder: And Jim, by the way, if you go back to the ... I'm sorry Ted. If you go back to the active business involvement that Ted brought up as one of the five factors and the idea of where your economics originate from, once you're in that satellite office, that's no longer New York.
James DiNardo: I understand crystal clear. That's very helpful the satellite office comment. Thank you.
Henry Rinder: So let's go to more questions. We still have a few minutes left. Let's see what kind of questions we have from the audience.
James DiNardo: Real quick. I just want to kind of voice one other thing in terms of intent. This came up recently with Ted and I and somebody else. Maybe you guys can touch on it. If you put your condo co-op New York City domicile up for sale and sell it and you've been living in New Jersey permanently, permanently for two years, you sell it in 2022, you haven't lived in New York City place, you've been in New Jersey permanently and you have more than a half a million dollars still of gains, do you receive the $500,000 capital gain exemption for the first 500,000 on the sale in New York City real estate?
Ted Byer: As long as that property was your principal residence in 24 of the prior 60 months, yes.
Henry Rinder: Two out of five years.
James DiNardo: Two out of five years, but you will be ... And they don't have to be consecutive. But you will be subject to New York state withholding tax, so you would have to file a New York state non-resident return to show the exclusion and claim a refund to the taxes.
Henry Rinder: So it's a messy situation one, but two, it's a situation where a client could in 2020, not 2020, 2021, 2022, however long they're in New Jersey not pay New York City income tax and still be able to sell a condo and receive the first $500,000 capital gains tax-free.
Ted Byer: Absolutely. Correct.
Henry Rinder: Very helpful. Subject to withholding which we mentioned before that on a closing there would be a approximately 9% withholding of the estimated gain. But one thing that I want to bring up if the closing happens and on that day the taxpayer is still a resident of that condo co-op, then there is no withholding. There is a specific exclusion from withholding that has to do with if you're a resident and you're moving out the next day to Connecticut but the day of your sale you're closing, you're still a resident, there is no withholding.
James DiNardo: We have a couple of additional questions, but before we go through the questions we have written out already, any questions from clients?
Amanda: Yeah, there's a couple questions that came through. So one of the questions is that after Superstorm Sandy, New York City was inflexible in dealing with the residency issue. Based on those days spent in New York City, do you guys think that's going to be the same looking at COVID-19 and some of the travel restrictions and things like that?
James DiNardo: I don't have a crystal ball.
Ted Byer: Yeah, but I can tell you one thing.
Henry Rinder: Go ahead Ted.
Ted Byer: Maybe allowing an exception to the residency rules costs the states money, and the fact that they're all running out of money right now leaves me to believe that they're going to be less flexible than we hope they will be.
Henry Rinder: And let's not forget this thing. When the audits take place, we would hope we're going to have the vaccine and COVID will be under control. So the crisis of COVID will be all but forgotten and yet now to touch point, the states and the city will be in dire need of revenue and cashflow. So the incentive to be kinder will diminish, I'm sure.
Amanda: I think those are all really good points, so it sounds like we're going to have to wait and see a little bit, but based on that they won't be that flexible. We also had another question about telecommuting. Someone wanted to know if they telecommute from somewhere else in New York but then they travel to the city sometimes, do they prorate the city taxes for the days that they were there or how does that work?
Ted Byer: Well, it depends if they're a city resident or not. It really depends if there's city residents. If there's not a city resident, there is no New York City tax. New York City income tax, wage tax is only on residents. Unincorporated business tax could be applied to a non-resident. So we would need to get a little more detail on that question to be able to really answer it appropriately.
James DiNardo: Ted, let's play that all the way through just one more time. Client left their New York City place which was their primary residence in the middle of March. Never went back, no intent, checked a whole bunch of these five different things, checked the whole bunch of these secondary things. Then is required to now commute from Stanford, Connecticut to New York City five days a week. COVID's over next month or in December, and we have five days a week back to commuting. Are they a New York City resident from an income tax standpoint?
Ted Byer: Not if they checked all the ... dotted all the Is, crossed all the Ts and the intent is not to return to their New York City co-op and they did something to try to sell or try to list it, they rented it out to somebody and did something so it's no longer their domicile.
James DiNardo: It's the same example of somebody just moving ... It's the same example of somebody just permanently moving to Westchester from New York City.
Ted Byer: That's correct. But then the question has got to be, as we alluded to earlier, is intent. What's happening with the New York City apartment? Is it vacant? Do they have a tenant in there? Are they trying to sell it? Or are they keeping it because you know what, maybe in 2022, once all this blows over, maybe they'll come back, and it's still fully furnished and ready to go. The example where they did everything that they were supposed to do, no, they're not going to pay the New York City tax after the date they moved out of the city.
Henry Rinder: And Jim, just from the audit side, it would be good for us to kind of go over what are the techniques used by New York state auditors in ascertaining whether you are in a city, where are you in a city. Just to give you an example, in an audit that I was conducting on behalf of a client, the agents subpoenaed the records from the Verizon to establish physical location of our client. And the idea was to establish that he was in New York for more than 182 days. But it also gives you an idea of what the locations are because it shows you the ping locations.
So if a client claims, "Oh, I don't go to my apartment," and it turns out that all the American Express charges and all the Visa charges and the pings are within two blocks of his or her apartment, I think that's going to be pretty damning when you're dealing with the auditors.
Ted Byer: Yeah, a couple things if I could add Henry. Credit card receipts, cell phone, easy pass. In a residency audit, they're all going to be subpoenaed. The other thing which I preach to all my clients. If you have applied for the New York City resident parking tax exemption and you leave the city, you must cancel that exemption. You don't want to be sitting in an audit situation where you're claiming that you're a non-resident of New York City but you still have the New York City resident parking tax exemption. You lost the audit, right then and there. Doesn't matter what you did or everything else. If you told the parking authority you're a resident, then you're a resident for income tax, end of discussion. Very, very important.
Henry Rinder: Yep. That's a good point, a very good point indeed. And since Ted and I deal with the auditors, we kind of see what goes on. And all we can do is recommend to clients that they should do this with the best intentions, check off these checklists to make sure that they do what they're supposed to be doing because every one of these boxes that's checked off is improving their chances of surviving an audit without any issues.
James DiNardo: Any other questions from clients?
Amanda: Yes. There was another question about whether or not they're saying their spouse live in two separate states, can they file separately based on residency?
Ted Byer: Yes, I have that situation. You can file a joint federal in separate states if you have spouses that are residents of separate states, absolutely.
Amanda: Perfect. Do we have time for ... Do you guys want to take one more question? I think we have one more there, a couple that came here, so I'll just give you guys one more. Someone asked about if their audit is going to be delayed. If the audit ends up with tax liability, do they get relief from that extra interest or how does that work?
Ted Byer: That's yet to be codified. We don't know. Usually not interest. Interest is statutory based on days counts. So the jurisdiction would say that you had effective use of that money, therefore you should pay interest on it. I think we would have a rational argument to say that perhaps time related penalties could be abated due to factors that we can't control. But I don't think you would be able to get interest that way. You agree Henry?
Henry Rinder: Unless the statute in that jurisdiction, and I'm not sure whether New York has the discretionary authority. New Jersey does not. New Jersey Division of Taxation director does not have the authority to abate the interest or reduce the interest even if the circumstances would suggest that that would be warranted. I'm not sure whether New York Department of Revenues doesn't have the authority somewhere in the statute. I'm just not certain of it.
Amanda: Okay. And I think we have a couple other questions. Sorry, go ahead Jim.
James DiNardo: Yeah, fire away Amanda. Keep them coming. People can drop off if they need to.
Amanda: People wanted to know if in terms of the audit if they can subpoena like employer-provided phone records, or do they just look at your personal phone records for that?
Ted Byer: They're going to start with your personal stuff, but ... Yeah, they're going to start with your personal information and then ... But hopefully they don't have to subpoena it because if you've done everything appropriately, there's no harm in giving them the documentation that they requested. But sure, certainly, they can ... If you have a business cell phone, I mean I have a business cell phone, I never see the bill. But sure. Why wouldn't they want to see that bill to see where calls originated from. Absolutely. They have that right.
Henry Rinder: And they do have the statutory right to do it. They would have to establish relevancy of the items they're requesting. But I personally have not seen it. They were able to go to third-party vendors as soon as they knew what the person used. But I'm thinking in private companies in particular Ted where the American Express and other credit cards might be in the name of the corporation, we've generally produced it so they didn't have the necessity to subpoena them, but they have the authority to do that.
Ted Byer: I agree.
Henry Rinder: Any other questions before we wrap up? We're a little over the timeline. But if there's any unanswered questions, we could spend a couple more minutes. Amanda?
Amanda: Sure. Someone asked one, how long ... I know we had talked about this a little bit previously on the call, but how long before moving they should start to plan to put these pieces in place? I know there's the days requirement, but if there's anything else that they should be planning or talking to someone about?
Ted Byer: I tell my clients this. They get out of bed in the morning and somewhere in the middle of the night the thought crossed their minds that they should move to another taxable jurisdiction, they should call me that morning because the more time we have to plan, the better it is.
Henry Rinder: I totally agree. I totally agree.
Ted Byer: I mean it's better than the call that I get that says, "Oh, I forgot to tell you. We moved to Connecticut last week. What was I supposed to do?" I'd much rather get the call, "We're thinking about moving with Connecticut. What do we have to do?"
Henry Rinder: It's never soon enough. It should be as soon as possible. Jim, any other thoughts before we close?
James DiNardo: I think that's a wrap. I appreciate the time Henry and Ted, Smolin for setting us up. I'm sure we'll have additional questions and they'll be tailored and a little bit more specific on a client by client basis.