Issue

When an employee is in the process of moving from one state to another and the move “straddles” a calendar year, how do you determine which state they were a resident of?

Situation

Saltwater Christian College (SCC) is a public charity and a school under I.R.C. sections 501(c)(3) and 170(b)(1)(A)(ii). As we are having our quarterly “tax call” with their CFO, he raises a question. “We have a new president who moved here from New York. He moved to our President’s residence in May 2016, but kept his apartment in New York. He has now asked me which state he would be a resident of for 2016. If he is a resident of New York, can he deduct the expenses in our state as travel expenses?”

We ask the CFO, “Did he move his dog to your state?”

The CFO thinks we are kidding, but we explain that a recent New York state court ruled on this issue and “after evaluating the factors supporting [taxpayer’s] change in domicile to Texas, among the most important being his decision to move his dog to Texas. According to the court, the move of items that are ‘near and dear tend to demonstrate a person’s intention’ to change domicile.”

We go on to provide SCC’s CFO with other guidelines for determining a taxpayer’s “tax home” from IRS Publication 463 and tell him that they must be aware of state laws also.

Rules

From IRS Publication 463:

Tax Home
To determine whether you are traveling away from home, you must first determine the location of your tax home.

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.

If you have more than one regular place of business, your tax home is your main place of business. See Main place of business or work, later.

If you don’t have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. See No main place of business or work, later.

If you don’t have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you can’t claim a travel expense deduction because you are never considered to be traveling away from home.

Bottom Line

Determining an employee’s “tax home” can be interesting. Not only are there myriad IRS rules, you have to navigate state laws also. You should touch base with your skilled, knowledgeable, and experienced not-for-profit tax professional. They will be able to help you navigate these potentially treacherous waters.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.