California Office of Tax Appeals Rejects Appeal by Individual that Relocated to Malaysia for 13 months but Returned

On July 23, 2020, the California Office of Tax Appeals, in the Matter of the Appeal of L. MAZER AND M. MAZER, rejected an appeal by a taxpayer that he was not a resident of California for 2013.

In February 2013, appellant-husband moved from California to Malaysia for the purpose of employment. The appellant-husband remained there for 13 months before returning to California after ending his employment in Malaysia. The appellant-wife did not accompany appellant-husband to live in Malaysia and continued to live at appellants’ home in California during 2013. She remained a domiciliary and resident of California during the 2013 tax year. Appellants also have an adult daughter who remained in California.

Appellants timely filed a 2013 California Resident Income Tax Return (Form 540) using the married filing jointly filing status and indicating an address in California. On their Schedule CA, they subtracted appellant-husband’s wages of $57,307, which represents one-half of that earned in Malaysia (representing his 50% community property share). The California Franchise Tax Board (“FTB”) audited the taxpayers and determined that the appellant-husband remained a California resident for 2013. Consequently, the FTB assessed additional tax on this basis.

After unsuccessfully protesting the FTB audit assessment, the taxpayer’s appealed to the California Office of Tax Appeals.

As a threshold matter, as is generally the case in tax matters, FTB’s determinations of residency are presumed correct, and the taxpayer bears the burden of showing error in those determinations. (Appeal of Bragg (2003-SBE-002) 2003 WL 21403264.)

California residents are taxed upon their entire taxable income (regardless of source), while nonresidents are only taxed on income from California sources. (R&TC, §§ 17041(a), (b), & (i), 17951.) California defines a “resident” as including: (1) every individual who is in California for other than a temporary or transitory purpose; or (2) every individual domiciled in California who is outside California for a temporary or transitory purpose. (R&TC, § 17014(a)(1)-(2); see also Cal. Code Regs., tit. 18, § 17014.) An individual may have several residences simultaneously, but an individual can only have one domicile at any given time. (Cal. Code Regs., tit. 18, § 17014(c); Whittell v. Franchise Tax Bd. (1964) 231 Cal.App.2d 278, 284.)
A “nonresident” is defined as “every individual other than a resident.” (R&TC, § 17015.)

In this case, the critical question was whether the petitioner-husband was “ outside [California] for a temporary or transitory purpose.” (R&TC, § 17014(a)(2).) “The key question under either [test] is whether the taxpayer’s purpose in entering or leaving California was temporary or transitory in character.” (Appeal of Berner (2001-SBE-006-A) 2002 WL 1884256.)

An individual can have only one domicile at any given time. (Cal. Code Regs., tit. 18, § 17014(c).) Domicile is defined as the one location where an individual has the most settled and permanent connection, and the place to which an individual intends to return when absent. (Appeal of Bragg, supra; Cal. Code Regs., tit. 18, § 17014(c).) An individual who is domiciled in California and leaves the state retains his or her California domicile as long
as there is a definite intention of returning to California, regardless of the length of time or the reasons for the absence. (Cal. Code Regs., tit. 18, § 17014(c).) In order to change domicile, a taxpayer must: (1) actually move to a new residence; and (2) intend to remain there permanently or indefinitely. (Appeal of Bragg, supra; see also Noble v. Franchise Tax Bd. (2004) 118 Cal.App.4th 560, 568 [noting these two elements as indispensable to accomplishing a change of domicile].) Intent is not determined merely from unsubstantiated statements; the individual’s acts and declarations will also be considered. (Appeal of Bragg, supra; see also Noble v. Franchise Tax Bd., supra, 118 Cal.App.4th at pp. 567-568.)

A domicile once acquired is presumed to continue until it is shown to have been changed. (Appeal of Bailey (76-SBE-016) 1976 WL 4032.) The burden of proof as to a change of domicile is on the party asserting such change. (Appeal of Bragg, supra.) If there is doubt on the question of domicile after presentation of the facts and circumstances, then domicile must be found to have not changed. (Ibid.)

In analyzing the facts, the Office of Tax Appeals noted that while appellant-husband lived and worked in Malaysia, appellant-husband’s actions did
not indicate he intended to abandon his old domicile and establish a new one. Appellant-wife remained in California at their marital abode that was maintained in his absence, the address of which was used on their 2013 California tax return. The maintenance of a marital abode is a significant factor in resolving the question of domicile. (Appeal of Bailey, supra.) Appellants contend that appellant-wife was in California merely to facilitate the transition to Malaysia. However, appellants provided no evidence to indicate any steps taken to move appellant-wife to a new permanent home in Malaysia. In addition, after his employment in Malaysia concluded, appellant-husband returned to the home that was retained in California. An expectation of returning to one’s former place of abode defeats the cquisition of a new domicile. (Appeal of Addington (82-SBE-001) 1982 WL 11679.)

Based on these facts, the Office of Tax Appeals determined that the appellant-husband was domiciled in California. Consequently, the Office of Tax Appeals reasoned that appellant-husband will be considered a resident of California under R&TC section 17014(a)(2) if it determined he was outside the state for only a temporary or transitory purpose.

Whether an individual is outside California for a temporary or transitory purpose is a question of fact to be determined by examining all the circumstances of each particular case. (Cal. Code Regs., tit. 18, § 17014(b); see Appeal of Addington, supra.) The determination cannot be based solely on the individual’s subjective intent but instead must be based on objective facts. (Appeal of Berner, supra.) An absence for a specified duration of two years or less, and not indefinitely, has been held to be only temporary and transitory. (Appeal of Crozier (92-SBE-005) 1992 WL 92339.) However, a stay of less than two years will not automatically indicate a temporary or transitory purpose if the reason for the shortened stay is not inconsistent with an intent that the stay be long, permanent, or indefinite. (Ibid.) An absence for employment or business purposes which would require a long or indefinite period to complete is not temporary or transitory. (Ibid.) An
“indefinite period,” however, is not one of weeks or months but one of “substantial duration” involving a period of years. (Ibid.)

Analyzing the facts, the Office of Tax Appeals noted that the appellant-husband did not establish sufficient ties in Malaysia to show that his presence there was other than temporary or transitory. Accordingly, the appellant-husband was not able to carry his burden of proof and did not prevail.

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