Preparing for a state Income tax Audit
A little background information:
In 2012, I established residency in a “no income tax” state. I had retired 2 years prior in 2010. To this day (2018) I maintain property in both states. In 2013, I took responsibility to serve as caregiver for my elderly parent and as part of that plan (having her age in place at home), I renovated the house I had “vacated”. In years 2013-2015, while still able to travel, she & I (and other family members) spent half the year in each state. My parent’s health deteriorated (in late 2015) prompting surgeries, therapies and doctor’s appointments. Trying to coordinate this type of care between two state was becoming overwhelming so in 2016, a decision was made regarding application for in-home state assistance (and medicaid was approved in 2016). Late in 2017, my parent transitioned to LTC and I am now making plans to rent or sell the property. For all intent and purposes this property would have been sold or rented back in 2012 had I not taken on the responsibilities of caring for my parent.
In March 2018, I receive a “Failure to File Notice” for the tax year 2013. I called for an explanation and it appears I neglected to change my address on some of my financials…in particular an investment bank that generates 1099s. This 1099 address discrepancy was flag recently by the IRS and forwarded to state I moved from. I gave the background information (mentioned above) as part of my conversation with the state revenue specialist. He determined that this might be a more complicated matter and that additional information will need to be provided. As I await the next correspondence, I wanted to share this story with readers who may be in retirement and are thinking of caring for a family member.
For Alan and others who respond: How do I prepare for this type of potential audit. I have created a spreadsheet that details monthly credit card activity which should help substantiate my time spent in each state, but care decision prioritized many of these locale decisions, especially as care became more acute.
Thanks in advance.
Permalink Submitted by Alan - IRA critic on Wed, 2018-03-14 22:33
Steve, all you can do is collect as much evidence of the number of days of physical presence in each state for 2013. Most states use 183 days to determine domicile. While some of the state guidelines are statutory there will inevitably be some subjective decisions. A big one of those is whether a close call for 2013 will lead to similar challenges for the years after that. If you are dealing with the super aggressive states such as NY or CA, the borderline calls will not go in your favor. Both states have long term experience pursuing refugees to no tax states in particular. They don’t have to be concerned with your having paid taxes to the new state as an indication of intent or as amounts they would have to give credit for. I don’t know if there are any carve outs for family care giving efforts, perhaps someone else can comment on that or other possible factors.