By: Steven D. Hamilton, Principal, Steven D. Hamilton, CPA

September 03, 2015 7:52 pm EDT
New York taxes

Did you know that New York is likely to audit you if you move away from the state? These “residency audits” are infamous, as the outcome is rarely in doubt. They are the state tax equivalent of World Wrestling Entertainment.

I have never lived in a state that would not allow me to leave. There is something about such behavior that is highly disturbing.

I am reading Patrick Carr’s request for redetermination with the New York Division of Tax Appeals.

Carr is an attorney who was admitted to the New York Bar in 1964. He was later admitted to the New Jersey Bar. He followed the traditional New York migration pattern, and by 2007 he was living in Sarasota. He was retired, so he did not bother to move his law license to Florida.

He got involved with a case. Since he didn’t have a Florida license, the court allowed him “pro hac vice” status, literally meaning “this time only.” The court allowed him – as an out-of-state lawyer – to appear in court for a specific trial.

The case went on for a while, and he had legal fee income for 2007, 2008 and 2009.

He reported the income on his federal return as self-employment income. There is no Florida individual income tax.

Wouldn’t you know that he got pulled for a residency audit?

New York conceded that he had successfully left New York.

That should have been the end of the matter, but …

New York still wanted its taxes.

"The taxpayer received a large amount of money in tax year 2007 from a case he litigated in Florida. Schedule C income for 2008 and 2009 were relatively smaller compared to 2007. The taxpayer stated that all of his schedule C income from legal services was sourced to the state of Florida.”

Let a tax pro translate the above:

We want the money.

Back to New York:

"However, the taxpayer is not licensed to practice law in the State of Florida.”

Tax pro:                   

Sounds like a Florida problem.

New York:

"It was determined that he was admitted as counsel pro hac vice in the Circuit Court of the 12th Judicial Circuit in Sarasota County, Florida. This means that he was given special permission to help litigate this particular case even though you are not licensed to practice law in the state of Florida.”

Tax pro:

He received permission from the Court. Are there any other issues?

New York:

"Therefore, all of your income is subject to New York income tax, since your income was attributable to a profession carried out in New York State….”

Tax pro:

By "carried out in New York State," do you mean Sarasota?

New York admitted he never did any of the work in New York, and also admitted that he was not a resident of New York.

Tax pro:

This was productive. Stay in touch.

New York nonetheless sent him a tax bill for $68 thousand, plus interest. They reasoned that his New York law license was enough to make him taxable in New York.

Tax pro:

Why is New York dissing New Jersey? Carr had a New Jersey license as well as a New York license. Why don’t you make it 50% to keep it fair?

New York:

He used to live in New York.

Tax pro:

He used to go to college. Why don't you bill him for tuition also?  

You already know this wound up in Court.

And the Court pointed out the obvious:

  • Carr did not have an office in New York
  • Carr did not practice in New York
  • Carr had an office or other place of practice outside New York
  • Carr had a license outside New York
  • He was authorized to practice in Florida. In fact, that is what pro hac vice means
  • Holding a New York license is not the same as carrying on a profession in New York

The Court told New York to go away.

What upsets me about state tax behavior like this is the cost and stress imposed upon the individual. I can see that Carr represented himself (“pro se”) in this matter, but he is an attorney. Most people do not have the training and likely would not represent themselves. They would have to hire a tax pro to fend-off a reckless challenge by New York or another state. Even if they win, they lose – after they pay the professional fees.

The views and opinions expressed herein are those of the author(s). Core Compass’s Terms Of Use applies.

About the author

Steven D. Hamilton is a career CPA, with extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.

New YorkFloridastate income taxesstate tax residency
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