Can Trump Avoid Taxes With Change of Address? It May Not Be So Simple
Under state law, taxpayers who spend 184 days a year in New York — more than half the year — have to pay state taxes on all of their income.
U.S. President Donald Trump gestures during a campaign rally in Tupelo, Mississippi, U.S., November 1, 2019. REUTERS/Leah Millis
Like a long line of other wealthy New Yorkers, President Donald Trump has decided to establish his legal residence in Florida, apparently at least in part to save money on taxes.
But changing one’s legal home is not so simple.
New York state has a platoon of state auditors who zealously examine whether people are trying to skirt paying its state and local taxes by improperly claiming that they live elsewhere.
Those officials regularly face off against an industry of accountants and lawyers who specialize in tax avoidance strategies.
Under state law, taxpayers who spend 184 days a year in New York — more than half the year — have to pay state taxes on all of their income. But even if a person does spend most of the year out of state, that is not enough.
Tax experts said that convincing auditors that a taxpayer has gone from being a New Yorker to being a Floridian involves more than filing a “declaration of domicile” form, as Trump and Melania Trump, the first lady, did in Palm Beach County Circuit Court in September.
Florida is one of the few states with no state or local income taxes and has long been a preferred destination for wealthy New Yorkers looking to lower their tax bills. But Mark Klein, chairman of the law firm Hodgson Russ, said New York “made it very clear at least a dozen years ago that filling out pieces of paper does not change your domicile.”
For its part, New York has a multipart test that takes in everything from where a taxpayer’s family is and where he or she keeps “items near and dear,” like family heirlooms. Auditors also examine whether a taxpayer continues to maintain a business in New York.
In this case, if Trump still controlled the Trump Organization, with its considerable holdings in New York City, that might raise questions.
In other words, tax officials look at more than whether a taxpayer has simply switched from a New York bank to a Florida bank.
It is not clear how much time Trump plans to spend in New York during the rest of his presidency or after he leaves the White House — or whether he plans to keep his triplex apartment in Trump Tower or sell it, a move that could figure in how New York evaluates his tax status.
And the burden of proof would be on him.
“Unlike the current impeachment hearings, where the burden of proof is on the House of Representatives, here the burden of proof is on the president to prove that he is no longer a New York resident,” said Michael Kosnitzky, who chairs the private wealth group at the law firm Pillsbury Winthrop Shaw Pittman. “The burden is squarely on him.”
There are seemingly reams of rules and endless ways taxpayers can be tripped up.
Nishant Mittal, a founder of Monaeo, which offers an app to help wealthy people keep track of their whereabouts for tax purposes, said New York had conducted an average of 3,024 nonresidency audits a year between 2010 and 2017. He said the audits had yielded about $1 billion for the state.
Barry Horowitz, a state and local tax partner in the accounting firm of Withum, said New York had been aggressive about auditing taxpayers who left the state — or claimed, for tax purposes, that they had.
“New York’s going to fight you 100% on this,” Horowitz said. “They audit basically 100% of the returns for change of residence. Of every client I’ve handled who changed residency, they’ve all been audited.” He said he had dealt with “800-plus audits.”
One issue that tax authorities consider is, “have you abandoned your New York residence?” Kosnitzky said.
But the state considers more than whether abandoning a New York residence means giving up a brick-and-mortar house, like Trump’s home on the 58th floor of Trump Tower.
“The term they use is where you have established strong and enduring ties,” Kosnitzky said. “He’s associated with New York. He’s Mr. New York. It’s hard for Mr. New York to disavow his residency. It’s not insurmountable, but he’s associated with New York.”
Another factor that could help Trump prove his case is whether a taxpayer who has a business has been running that business in the tax year in question.
Trump “could be found to be a Florida resident because he’s not technically running the company anymore,” said Robin Statsky, an accountant in Manhattan. “He’s basically been in Washington” more than he has been anywhere else since he was inaugurated.
Tax experts said Trump is not alone in leaving. There has been a surge of departures among hedge fund managers looking to slash their tax bills, especially after they lost the deduction for state and local taxes in the 2017 tax overhaul.
The elimination of that deduction had a significant impact among well-off residents in New York and New Jersey, states with some of the country’s highest local income tax rates.
By some estimates, leaving could reduce their tax bills by nearly 13 percentage points. One New York financial executive who relocated to Florida said his tax savings amounted to between $100,000 and $200,000 on income of between $2 million and $3 million.
This executive, who spoke on condition of anonymity because his firm does not allow employees to speak to reporters, said that saving on taxes was not the only reason he moved. But he said the decision to leave New York “was substantially influenced by not having to pay New York for something I don’t feel I’m getting much value for.”
The exodus of people like him has created business for lawyers like Klein of Hodgson Russ.
“Most of my practice these days is representing high-net-worth, high-income individuals who are getting out of Dodge,” he said, referring to New York. “I probably counsel four or five people a week on how to establish their domicile in — not necessarily Florida, because a lot of people are moving to Wyoming or Nevada, to low- or no-tax states.”
If New York does challenge a residency, the chances that a taxpayer will win are not good, said Mittal of Monaeo.
“The reason is, New York is pulling data from cellphone carriers” and other sources like social media sites, he said. “When the state comes in and says, ‘You were not in New York,’ it’s really, really hard to fight it.”
Klein said the firm had hired three paralegals who used to be auditors in New York City. One now does what he called “prophylactic audits,” reviewing clients’ cases and “telling us what her recommendation would have been to her supervisors had she still been an auditor.”
That Trump would walk away from New York might seem hard to imagine. It was the city where he was born, where he built towers that carried his name and where his blustering personality and his romantic life — he is twice divorced — made him a fixture in the tabloids. It was also where he starred in “The Apprentice,” the reality-television show that elevated his national profile.
But since he was elected president, it has seemed that the city and Trump were headed for a breakup. In discussing his decision to leave New York on Twitter, Trump said he had been treated poorly by political leaders in the state, despite having paid “millions of dollars in city, state and local taxes each year.”
Because Trump has never released his taxes, the validity of his claim cannot be determined.
Trump is also said to be angered by a subpoena filed by Cyrus Vance Jr., the Manhattan district attorney, seeking his income tax returns, though changing his residence is not likely to affect the case.
Gov. Andrew Cuomo — who Thursday tweeted “Good riddance” about Trump’s change of residence — speculated at an unrelated news conference Friday that the president had moved for “legal purposes,” seemingly referring to the case being pursued by Vance, rather than because of New York’s high taxes.
“He’s resisting releasing his taxes. He’s in litigation. I think his lawyers think this will help his legal case,” Cuomo said, though he acknowledged he did not know that to be true.
Trump responded with a series of tweets that began and ended with “I love New York.”
“New York can never be great again under the current leadership,” he wrote, naming Cuomo and Mayor Bill DeBlasio. “Cuomo has weaponized the prosecutors to do his dirty work (and to keep him out of jams), a reason some don’t want to be” in New York, and “another reason they are leaving.”
James Barron c.2019 The New York Times Company
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