Go to Top

Duly Noted

New York Steps Up Search For Residents To Tax. Already one of the most aggressive states when it comes to classifying people with multiple homes as residents subject to its taxes, New York has issued new audit guidelines promising even tougher enforcement. Agents were told to consider the location of close relatives outside the taxpayer’s household, such as grandchildren or elderly parents, as one of the primary factors in determining the taxpayer’s domicile. Taxpayers domiciled outside New York also can be taxed as residents if they maintain a dwelling in the state and are present more than 183 days in a tax year. Commentator Timothy Noonan observed that the new guidelines tell auditors to step up their “personal observations” of taxpayer habits, including greater use of interviews with doormen, mail carriers and others who might know the taxpayer’s habits. 2010 STT 89-8.

Tactical Error Leaves IRS With Only A Small Victory. A tactical error left the Internal Revenue Service with only a small victory in its effort to collect a large gift tax assessment. Suzanne Pierre created a limited liability company to hold stocks and bonds that she wanted to transfer to her son and granddaughter. She transferred 50 percent of the LLC to trusts for each of them, partly by gift but mostly by sale. In an earlier decision, the Tax Court rejected an IRS claim that the LLC should be disregarded. The second round of litigation centered on whether the “sale” portions of the transaction should be disregarded under the “step transaction” doctrine, leaving the entire transfer to be treated as a taxable gift. The Tax Court agreed with the IRS position — but because the IRS did not present its own evidence about the value of the resulting 50% gifts, the Tax Court made only a minor adjustment in the discounts the taxpayer claimed for lack of control and marketability. The court rejected most of the IRS claim for more than $1 million in additional gift tax. Suzanne J. Pierre v. Commissioner, T.C. Memo 2010-106.

Same-Sex Marriage Arrives In D.C. The District of Columbia became the first U.S. jurisdiction south of the Mason-Dixon line to authorize same-sex marriage when a new law took effect on March 9. The District also recognizes same-sex marriages performed in other jurisdictions, and it permits married same-sex couples to file income tax returns jointly or separately regardless of their federal filing status. Five states — Massachusetts, Connecticut, Vermont, New Hampshire and Iowa — currently permit same-sex marriages. California allowed same-sex marriage for several months in 2008 before voters there passed Proposition 8 to amend the state Constitution. Maine’s Legislature voted to allow same-sex marriage last year, but the law was overturned in a ballot initiative before it came into effect. 2010 STT 58-4.

If you enjoyed this article, be sure to check out Palisades Hudson’s books, The High Achiever’s Guide To Wealth and Looking Ahead: Life, Family, Wealth and Business After 55. Both are available in paperback and as e-books.