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Duly Noted

Just Keep Doing What You’re Doing. Having lost a landmark case in New York’s highest court, state tax administrators issued new guidelines for auditors telling them, in effect, that the decision makes little difference. The Court of Appeals found in Matter of John Gaied that the state’s treatment of nonresidents who maintain dwellings in New York has no rational basis. To be a resident, the court said, an individual must actually reside in the state. But in its new audit guidelines, the Department of Taxation and Finance informed examiners that someone who has “unfettered access” to a dwelling that is furnished for use should be considered to be maintaining a permanent place of abode regardless of whether the individual actually uses it as a home. If that individual is in the state more than 183 days in a year, as is the case with many commuters, that person would be treated as resident regardless of the court’s ruling. The guidelines are posted on the department’s website.

You Divorce Your Spouse But Not Her Kids. Tony Ray Duncan married Candice Arbogast in 2008. He lived with Arbogast and her two children until the couple divorced in late 2011. Duncan claimed his ex-wife and her two children as dependents for that tax year, but the Internal Revenue Service denied those benefits. The Tax Court upheld the IRS position regarding Duncan’s ex-wife, but noted that tax regulations permit stepchildren to satisfy the relationship test to be claimed as dependents even after a divorce. Duncan was permitted to claim the two children and to file as head of household. Tony Ray Duncan v. Commissioner, T.C. Summary Opinion 2014-56.

Nothing Filed, Nothing Gained. Michigan resident Donald Salzer stopped filing income tax returns to protest what he termed a socialist takeover of the nation. The Internal Revenue Service prepared its own substitute return for 2010, treating Salzer, whose wife did not earn enough to be required to file, as married filing separately. Salzer contended in Tax Court that he was entitled to joint filing status and that, if treated that way, his withholding would cover his liability and he would owe nothing. Tax Court Judge Robert Armen was unmoved. By failing to file, the judge noted, Salzer forfeited the joint filing benefit he might have claimed. The judge declined to impose penalties for taking frivolous tax positions, noting that Salzer’s similar claims for 2008 and 2009 were still pending when he declined to file his 2010 returns. But the judge warned Salzer that penalties are possible if he continues to refuse to file based on his political views. Donald Thomas Salzer v. Commissioner, T.C. Memo 2014-188.

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