US Citizens Abroad

[Lion EA]

Every once in a while I get clients who go overseas to work for a couple years or more, but not often.  This is a couple plus two children living and working in Singapore for the last few years, now staying until 2020.  As I’ve seen people do before, they rented their house to friends/good tenants.  Who has time to sell in the press of packing up your family and career (college professor), and who wants to return years later to no home and with no current equity to buy a house in what will be an unpredictable market?  But, their trip has extended long past their original thought of two years, and they’ll be returning just as their girls are off to college and then out on their own, a time to downsize.  He’s taught at Yale in CT, as well as Vassar, so may not need to return to Poughkeepsie, NY. 

They wrote me the following:

"From a tax standpoint...

As you know, we own our house in Poughkeepsie with approximately 100,000 left on the mortgage.  I'd like to think we could sell it for at least 200,000 at this point.  Our tenants have expressed an interest in buying but we haven't had any conversation further than that.  We spoke to a realtor last summer who would be happy to handle the sale.

All that said, what would it mean?  It is my understanding that we need a residence in the US for multiple reasons such as continuity, taxes, etc., especially if we plan to come back...which we do.  C starts at E College in August and D has 2 more years of high school before heading either to the US or Europe.  A and I will stay here for those years while she finishes making our return Summer 2020.  

Do we need to own a home?

Does it have to be in NY? or would CT or MA be acceptable options for you to continue doing our taxes?  We don't know where we would return to but it is possible, maybe even likely that it will be the northeast.

The benefit to me of not owning the Pkpse house is not worrying about what needs to be done, such as new roof, furnace repair, general degradation, etc.  I would consider buying a 2- or 3-bdrm townhouse and having a property manager oversee it...

These are the questions I would love to have your insight on."

[Lion EA]

My biggest concern is -- Do they need a US home or a mailing address or any permanent nexus in the US at all during the time they are away?

Someone (their broker?) told them they had to own a home (maybe it was the college financial department).  And, they already had a good tenant lined up and thought they'd be back in 2-3 years.  Now that they're staying longer, they're having second thoughts.  And, I don't know!

Anyone know?  Any leads on how to research?  My attempts at searching have not brought me close to any answers to any of their questions.

[Catherine]

I have had several clients over the years who lived overseas extensively.  No, you do NOT "need" to own a home.  Most people who live overseas for a protracted period have a mail drop service (Florida has several; it also helps with relinquishing domicile in a high-tax state) that gets US mail, opens, scans, and securely sends it on.  Not cheap, but far less than maintaining a house here that you don't live in, and will lose the gain exemption on.  

One man lives (still!) in the Philippines, and has been there a good ten or fifteen years.  Another couple spent three years in Hong Kong.  One lady lives mainly in Argentina but teaches in Europe and will bop over there for a semester now and then.  All US citizens, NONE have a permanent US address other than the mail drop.

[Lion EA]

Thank you, Catherine.  I couldn't see any reason why for tax purposes.  They think it might have something to do with no residence in a state re college financial aid, but they'll have to ask that of the colleges their daughters are interested in.  They wanted to keep their house when it was going to be just a couple years.  But, things change.

[Lion EA]

One more question.  When they sell their house, from that point on they will file NO state income tax returns?  NY is a bit sticky about You have NOT left until you've stuck the landing, become a resident in another state.  We have managed to make a case for them filing non-resident NY returns to report their rental income/loss, not stepping foot in NY for a couple years now.  After they sell (if that's what they decide) they can have a mail drop, preferably in a non-tax state, and file federal but NO state returns, right?  They do visit the US, but less often now that aging parent issues have resolved.  College visits, some family visits (one set of relations is moving to FL).

[Roberts]

The State of Missouri will not allow a citizen to move their address to another state as they leave the country. They will want proof you lived there for several months before leaving or they'll declare you never actually moved your residency at all.

[Lion EA]

In the past, I've had NY and I've had CT ask for a copy of the new state's resident income tax return when going NRPY.  For this family, we cannot provide that.  We've filed NR NY for a year or two with NY rental income and a NY mail address (c/o friends) and a Singapore residence.  I expect NY to be a problem...

[Catherine]

My out of country clients do NOT have state returns.  If your clients use a FL mail drop, that becomes their "home" for domicile purposes.  No income tax in FL, but there must be something that another state will accept.

There are lots of people who move outside the country for years on end or permanently; there has GOT to be a way to prove they are NOT residents of their old state.  Yes, NY (and MA) will fuss and moan - but even there, there must be a way to prove to them.

[Lion EA]

Any NYers listening in on this thread?  Right now H&W have NYS drivers' licenses.  Is that going to cause a problem.

Catherine:  did your clients get international licenses, or FL?  Thank you for confirming that your clients in this situation do NOT have state returns.

I guess I'll start a checklist of changes for them to make.  Has anyone seen such a checklist, to keep me from reinventing the wheel during tax season?!

Love all the talent on this board.  I haven't seen a lot, but all of you together have seen it all.

[Gail in Virginia]

Virginia tends to be sticky about this as well.  They want proof that you have changed your state of residence and are not just domiciled out of the country.  Changing drivers license, using a different state address on the federal return, changing voter registration - all of these things can be used to indicate you are actually changing your state of residence.  Whether or not some bureaucrat in a state department of taxation will accept that is another kettle of fish entirely. 

[easytax]

Changing domicile, especially NY to anywhere is VERY HARD. Even in easy states there are certain things that must be cut in existing state and done in new state or neither will "approve" allow change. a google search on "changing domicile will even bring up many discussions on NY (they seem to like keeping ALL tax dollars).

Here is an article (full as many do not click on URL's):

Changing Your “Home” For State Tax Purposes – Not So Easy

It’s February, the middle of winter, and many of us are longing for warmer weather. Some with second homes in Florida or Arizona and the like start thinking about changing their primary residence for state income and estate tax purposes.  Despite “cocktail party talk”, changing your residence for tax purposes is not so easy;  and,  if you do desire to do so, you must become familiar with, and adhere to, the residency and domicile rules.

While New York imposes state income tax on a New York resident’s worldwide income, as well as state estate tax on taxable estates exceeding $4,187,500 (increasing each April 1 to eventually equal the federal estate tax exemption), Florida, for example, imposes no state income or estate tax upon its residents. A taxpayer is a New York resident if she is domiciled in New York, or if she is a “statutory resident”, which means spending 183 days or more per year in New York State and maintaining a permanent place of abode in New York State.  Even if the taxpayer  spent more than 183 days in Florida for that year, she still may have too many connections with New York that will lead to a determination that she has not changed her residency and is still a New York resident for New York tax purposes.  In order to successfully change one’s residence for tax purposes, many ties with one’s former home state must be loosened or broken;  and the important elements of one’s life must be centered in the new state.

There are generally five factors which the tax authorities will look to in determining whether someone has changed their residency, frequently referred to synonomously as one’s “domicile” for tax purposes:  (1)  physical presence, (2) home, (3) family and business activities, (4) personal property of significance to the taxpayer, and (5) documentary evidence.

Physical Presence. It is important to spend as much time as possible in your new state.  Keep track of the days spent in both the old and new states, especially for the first year or two after the change in domicile.  Stay at least 183 days of the year in the new state, but the more the better.

Home.  The taxpayer must have “abandoned” her old home.  Ways to show abandonment of an old home are to buy a bigger, nicer house in the new state, rent the old house out to a third party and/or put the old house on the market for sale.  Remove any property exemptions on the old house that are tied to it being a “primary” residence, like the STAR exemption.

Family and Business Activities. The taxpayer should have her family visit her in her new home state for important occasions, or, better yet, have other family members move to the new state, too.  The more family activities in the new state, the stronger the evidence that the new state is really the taxpayer’s new domicile.  Be careful of supporting a spouse or children located in the taxpayer’s old state, which could be used as evidence against the taxpayer.

Active business involvement in the taxpayer’s old state is evidence that there has been no change in domicile. Work as much as possible in the new state, and set up a “real” office in the new state, not just a home office.  If the taxpayer owns the business, consider moving the principal place of business to the new state and withdrawing any business registration in the old state.  Consider reorganizing the business entity in the new state.

Personal Property of Significance.  Move items of personal or sentimental value to the taxpayer’s new home.  This includes photos, trophies, yearbooks, collections, and the like.  Funeral and burial arrangements should be made in the new state.

Documentary Evidence. While not enough alone, changing one’s residence on documents adds evidence to the fact that the taxpayer has, indeed, changed her domicile.  Change the address on all accounts to the new address, including U.S. post office, social security, Medicare, credit card companies, tax authorities, phone companies, banks and financial institutions, doctors, social and religious organizations.  Obtain a driver’s license in the new state and change voter registration.

One factor will not control the determination of a taxpayer’s change of domicile. If you are considering a change of domicile to another state for tax purposes, make sure you are ready to satisfy all of the factors to prove your change of “home”; and discuss your plans with your tax advisor.

[easytax]

Probably not best timing BUT CPAAcademy is offering a webinar on "Changing Your Residency": https://www.cpaacademy.org/webinars/a0D1A00000xyPcZUAU 

CHANGING YOUR RESIDENCY

 

Register

Available Date(s)

Monday, March 19, 2018, 4:00 PM EDT

Tuesday, April 10, 2018, 4:00 PM EDT

 

Choose Your Time Zone: Please select Alaska Arizona Central Time (US & Canada) Eastern Time (US & Canada) Hawaii Indiana (East) Mountain Time (US & Canada) Pacific Time (US & Canada)

CostFree  CPE Credits1.5 hours  Subject AreaTaxes Course LevelBasic Instructional MethodGroup Internet Based PrerequisitesNone Advanced PreparationNone Who should attend?CFO / Controller
CPA - small firm
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Course Description

[Lion EA]

They don't care if they change their residency or not.  They just want to sell their house.  So, they want to know if they need a physical presence in the US for anything:  banking, FAFSA/college application issues, DL, etc.

[Catherine]

27 minutes ago, Lion EA said:

if they need a physical presence in the US for anything

Short answer is NO.

[Lion EA]

Thank you, Catherine and all.  NY may try to hold on to them.  But, if they do sell their house, I'm going to suggest they use the mail drop idea and change as many documents as possible.  They just want to be rid of the house before the roof and furnace break down!

[SaraEA]

CT is getting desperate!  This week we had four clients bring in letters from DRS saying the agency got info from IRS (citing an official sounding code section that refers to nothing more than the IRS's permission to share tax info with states) that the client lived CT in 2013 (3 three clients) and 2014-15 (1 client) and never filed a CT return.  The letter gave them the "generous" offer of paying up before the Ides of March and not paying interest.  In all cases the clients had moved and filed full-year resident returns in their new states.  I just made copies of those returns and told the clients to send them to CT, but after reading the above I'm not sure that will be good enough.  One of the clients had one tax doc out of many addressed to a parent's house in CT, but the others had all of their docs addressed to their new state.  I really think the DRS is grasping at straws at this point and will end up having spent a big sum on man hours to determine who gets letters and then producing and mailing them with the result that 99% of the recipients can prove residence in another state.  Going back FIVE years is ridiculous.  We had an audit once when the state wanted year-end credit card statements to see where they were using their card.  These states should clean up their fiscal messes and stop picking on people in a last-ditch effort to squeeze out some more revenue.

[Catherine]

53 minutes ago, SaraEA said:

These states should clean up their fiscal messes

Yes,  but it's far easier to try to dun people for money - since many will panic and pay.  I have NO sympathy for these states (especially my own); there is waste enough to choke a horse, but they just want more.

[Lion EA]

Yep, either CT cast a wide net in hopes of catching some working under the table or (more likely) a computer hiccuped.  Another preparer told me to have my clients call, that calling wards off further action.  So, far my clients who call have been treated kindly and not asked for any proof.  Even my client who actually did NOT file 2013 (out of the country, house robbed, recreating 2013-2014 data) was treated kindly.  One had moved in 2012, so had filed a CT 2012 PY return reporting his last date in CT; he still received a 2013 letter.  2013 letters for personal tax returns and 2012 letters for OP-424s are what I'm seeing so far.  Gotta be costing CT a fortune to answer all the telephone calls.  And, I'm not enjoying answering all the questions, either!