Want to tell the FTB you are a resident of Nevada? Its probably not going to work.

Getting enticed by those radio ads promoting Nevada corporations and becoming a Nevada resident so as to save on California taxes?  Its not going to be easy.

Below I posted a recent Board of Equalization case where a guy:

1.  Had a Nevada drivers license.
2.  Registered his truck in Nevada.
3.  Had Nevada car insurance.
4.  Had leased a Las Vegas apartment
5.  Had registered as a voter in Nevada

You would think that would make him a Nevada resident and thus not subject to California taxes wouldn’t you?  Oh by the way.  There was a little incentive for this guy to claim he was a Nevada resident. He sold a Nevada property for close to $30,000,000 during the time he claimed he was a resident.

Lets see, would you rather be a resident of a state that was going to hit you with taxes or a state with no taxes.  Its a no brainer.  However California felt like they had the right to tax the guy.  Here’s why:

1.  He had access to a home in California.
2.  He filed a divorce in California.
3.  His kids lived in California.
4.  He filed a California tax return a year earlier.
5.  He gave a California address on his non resident return he filed with California.
6.  He used a California tax preparer.
7.  He used a California address on his Nevada driver’s license.
8.  He had a couple new cars registered in California
9.  He had ownership in a couple California businesses.

Translation, California wanted him to pay taxes.

Normally I would wrap this column up by saying if you lived in La Quinta, Palm Desert, Palm Springs, Indian Wells, Rancho Mirage, Indio, or the Coachella valley and had questions about being a resident of Nevada, to give us a call.  However, there is a good chance you are going to lose that argument.

BOARD OF EQUALIZATION

STATE OF CALIFORNIA

In the Matter of the Appeal of:

MORDECHAI DAYAN

SUMMARY DECISION

PERSONAL INCOME TAX APPEAL

Adopted: November 19, 2013

Representing the Parties:

For Appellant:
Robert J. Herrera, Enrolled Agent

For Franchise Tax Board:
Ronald E. Hofsdal, Tax Counsel III

Counsel for the Board of Equalization:
Mai C. Tran, Tax Counsel

This appeal is made pursuant to section 19045 of the Revenue and Taxation Code (R&TC) from the action of the Franchise Tax Board (FTB or respondent) on appellant’s protest against a proposed assessment in the amount of $ 411,400 in tax and a late filing penalty of $ 102,850, 1 plus interest, for the 2007 tax year. The issues presented in this appeal are (1) whether appellant has shown that respondent’s determination of appellant’s residency is erroneous; and (2) whether appellant has demonstrated reasonable cause for the abatement of the late filing penalty.

FINDINGS AND DISCUSSION

Background

Prior to 2007, respondent indicates that appellant was domiciled in, and a long-time resident of, California. 2 Appellant filed California resident returns for 2000, 2001, 2002, 2003, 2004, 2005, 2006, and 2008. Starting in 2008, it is undisputed that appellant was and is domiciled in, and a resident of, California. In 2007, appellant recognized a capital gain of $ 4,718,167 from the sale of land, through his interest in Riverside Developments, LLC. 3 Appellant filed a 2007 California nonresident return on or about December 15, 2008. Upon review, respondent issued a Notice of Proposed Assessment (NPA) on November 16, 2010, which treated appellant as a California resident for 2007 and assessed tax of $ 411,400, a late filing penalty of $ 102,850, and a penalty for failure to furnish documents of $ 102,850. Respondent issued a Notice of Action (NOA) on May 10, 2011, affirming the NPA. This timely appeal then followed.

Contentions

Appellant

Appellant contends that he was a domiciliary and a resident of Nevada during the 2007 tax year. In support, appellant provides the following documents:

1) A copy of appellant’s Nevada driver’s license
covering the period of December 31, 2005 through
January 5, 2010, which lists both a Las Vegas, Nevada
address and a Sherman Oaks, California address;

2) A copy of appellant’s driver’s license covering
the period of January 8, 2010 through January 5,
2014, which lists a Las Vegas, Nevada address;

3) A copy of appellant’s Nevada vehicle registration
for a 2005 Dodge Ram issued on December 12, 2005,
and expired on December 12, 2006;

4) A copy of appellant’s Nevada vehicle insurance
card for the 2005 Dodge Ram with an effective date
of September 29, 2006, and an expiration date of
May 13, 2007;

5) A copy of appellant’s Nevada vehicle insurance
card for the 2005 Dodge Ram with an effective date
of January 3, 2007, and an expiration date of July
3, 2007;

6) A copy of appellant’s insurance coverage summary
covering the period from November 13, 2006 through
May 13, 2007;

7) A copy of a leasing agreement for a Las Vegas
apartment for the period December 6, 2005 through
November 30, 2008;

8) A copy of a letter from appellant’s mother dated
January 3, 2011, stating that appellant travelled
to Israel at least twice in 2007 to spend time with
appellant’s ailing father. Appellant’s mother states
that each visit was between three weeks to two months;

9) Copies of appellant’s passports issued by the
United States and Israel;

10) Appellant’s voter registration card for Clark
County, Nevada, issued on February 17, 2006; and

11) A copy of a seller’s closing agreement between
buyer Emerald Shores T, LLC and seller Riverside
Developments, LLC dated April 12, 2007, for the sale
of a piece of land in Nevada for $ 29,071,791.40.

Appellant also disagrees with respondent’s contention that appellant was domiciled in, and a long-time resident of, California prior to 2007. Appellant contends that he has established domicile in Nevada, separate from his former spouse, in 2006 based on the evidence listed above. Appellant further contends he followed the erroneous advice of his income tax preparer in filing a California resident return for 2006. Appellant contends that this act did not preclude appellant from correctly filing a non-resident return for 2007.

With regard to appellant’s divorce, appellant contends that he merely went along with his former spouse’s request for divorce, using the same divorce attorney as his former spouse to expedite the divorce process and keep his sanity. Appellant contends that, as a result of erroneous professional advice, he held himself out as a California resident on the Marriage Separation Agreement (MSA). Appellant claims that he returned to California in 2007 for a temporary purpose due to the unforeseen divorce request and the subsequent divorce proceedings. Appellant points out that the divorce proceeding was unexpected because his former spouse initiated the divorce. In response to this Board’s Appeals Division staff’s request for additional information, appellant states that he does not have any additional supporting documents, as the divorce caused him to be impaired.

Appellant also contests the imposition of the late filing penalty on the basis that appellant was going through a divorce, and, as a consequence, he suffered from mental illness. Appellant claims that his state of mind was impaired for many months due to the divorce and separation from his former spouse and children. Accordingly, appellant claims that he has demonstrated a reasonable cause for the abatement the late filing penalty.

Respondent

Respondent contends that appellant is a longtime domiciliary and resident of California. Respondent contends that a domicile is the place with which a person has the most settled and permanent connection. Respondent further contends that a change in domicile requires actual residence in a new place and an intention to remain there permanently or indefinitely without any intention to return to the former place of abode, citing Estate of Philips (1969) 269 Cal.App.2d 656. Respondent asserts that appellant’s closest connections in the 2007 tax year are to California, and not to Nevada. Respondent further asserts that, as appellant has not shown that his domicile clearly changed to Nevada, his domicile remains in California.

With respect to appellant’s residency, respondent contends that appellant has not established that he was outside of California for something other than a transitory or temporary purpose in the 2007 tax year. Respondent asserts that an analysis of the evidence based on the factors discussed in this Board’s decision in the Appeal of Stephen Bragg, 2003-SBE-002, decided on May 28, 2003, supports a determination that appellant’s closest connections remained with California. Therefore, respondent contends that appellant was a domiciliary and resident of California during the 2007 tax year.

With respect to the residential information, respondent contends the evidence strongly suggests that appellant did not possess a living place in Nevada during 2007. Respondent notes that the lease entered into between appellant and the Las Vegas landlord was voided on September 4, 2006, by agreement of the parties. With regard to the second lease which was entered into between appellant, his former spouse, and the Las Vegas landlord, respondent notes that this lease was not identified as a liability in the MSA. As such, respondent surmises that the second lease never went into effect or was no longer in effect at the time the MSA was signed in 2007. Respondent asserts that a September 2006 departure from Las Vegas is supported by the apparent lack of records, including bills for lawn care, telephone service, and other services after October 2006, despite being plentiful prior to October 2006. Respondent provided a telephone service notice dated October 31, 2006, indicating that telephone service for the apartment was disconnected. In contrast, respondent notes that, until their separation, appellant had access to a home in West Hills, California, which appellant owned but quit claimed to his former spouse 4 on September 6, 2005. Respondent further notes that appellant used numerous California addresses throughout 2007 and the years before and after the 2007 tax year.

Respondent also contends that appellant’s tax return information supports its position that appellant was a domiciliary and resident of California in the 2007 tax year. Respondent notes that appellant filed his 2006 California resident tax return in 2007 using a California address. In addition, while the 2007 return was filed in 2008, appellant used a California address on his California nonresident return. Respondent further notes that appellant used California tax preparers to file his 2006 and 2007 returns. Respondent further notes that the 2007 Internal Revenue Service Wage and Income Transcripts report indicates that appellant received a Schedule K-1 from Riverside Developments, LLC in which appellant received a capital gain of $ 4,718,167 and listed appellant’s Las Vegas, Nevada address. However, respondent notes that appellant also received Schedule K-1s from Mordy’s Construction, Inc. and Absolute Stone & Marble, Inc. and numerous Form 1099-Bs in which appellant’s address was listed in Encino, California. Appellant also received a Form 1098 for mortgage interest addressed to appellant in Agoura Hills, California. Respondent contends that appellant’s tax returns and supporting forms clearly reflect significant connections to California.

With regard to appellant’s Department of Motor Vehicle (DMV) records, respondent contends that it is significant that appellant purchased a 2007 Mercedes in California in June of 2007 and registered it in California in May of 2008. Appellant also registered a 2005 Lexus in California during October 2007. Respondent notes that, as part of the MSA, appellant retained ownership of both vehicles. In contrast, respondent notes that the 2005 Dodge Ram appellant registered in Nevada starting in December 2005 was not listed in the MSA. Respondent contends that the Dodge Ram was no longer in appellant’s possession at the time the MSA was signed in late 2007. Respondent further notes that the insurance cards for the Dodge Ram appear to be issued in 2006, although one card had a start date of January 3, 2007, and all the insurance cards expired in early to mid-2007. Respondent asserts that the registration of the Dodge Ram occurred at the time when it was undisputed that appellant was a California resident (2005). Respondent contends that appellant’s vehicles supports its contention that appellant was a California resident in the 2007 tax year.

Respondent also contends that, while appellant obtained a Nevada driver’s license on December 28, 2005, and renewed the license on January 8, 2010, appellant was a California resident in 2005, 2006, and 2008, when he held the Nevada license. Respondent contends that there is no evidence furnished from the Nevada Department of Motor Vehicles which reflects that appellant changed his mailing address in 2007, despite vacating his Las Vegas apartment in 2006. Accordingly, respondent contends that appellant’s Nevada driver’s license bears little weight to determining whether appellant was in Nevada for other than a temporary or transitory purpose in 2007. With regard to appellant’s Nevada voter registration, respondent contends that this factor does not favor either appellant or respondent as appellant never voted, despite registering to vote in late December 2005.

With regard to appellant’s submission of a letter from his mother, Miriam Dayan, stating that appellant travelled to Israel several times during the 2007 tax year due to his father’s serious medical problems, respondent contends that this is not relevant because appellant’s trips to Israel were clearly a temporary or transitory purpose regardless of whether appellant was a resident of California or Nevada. Respondent notes that, if appellant provided evidence of the origination point of his travels, appellant’s travel would then be relevant.

Respondent contends that the MSA supports its determination that appellant was a domiciliary and resident of California in the 2007 tax year. Respondent contends the MSA demonstrates that appellant took advantage of the laws and protections of California throughout 2007, despite appellant’s argument that he was a Nevada resident. In addition, respondent contends that the MSA acts as an admission because appellant agreed that he was a California resident for at least the six months prior to the signing of the MSA in December of 2007. 5 Next, respondent contends that the assets and liabilities establishing Nevada connections are not mentioned in the MSA, as one would expect if they were still assets and liabilities at the time the MSA was signed. Lastly, the absence of any evidence reflecting that appellant had access to, or possessed living quarters in, Nevada in 2007, combined with evidence which reflects that appellant abandoned his Nevada quarters in late 2006, supports respondent’s contention that appellant’s closest connections throughout 2007 were with California instead of Nevada.

With regard to the late filing penalty, respondent contends that it properly imposed the late filing penalty as appellant filed his return on December 15, 2008, well after the original due date of April 15, 2008, and the extended due date of October 15, 2008. Respondent further contends that appellant has not demonstrated reasonable cause to abate the penalty.

Law

Residency

California residents are taxed upon their entire taxable income regardless of source, while non-residents are only taxed on income from California sources. (Rev. & Tax. Code, section 17041, subds. (a), (b), and (i); 17951.) Part-year residents are taxed on their income earned while residents of this state, as well as all income derived from California sources while nonresidents. (Rev. & Tax. Code, section 17041, subds. (b) & (i).) A California resident includes: (i) every individual who is in this state for other than a temporary or transitory purpose; and (ii) every individual domiciled in this state who is outside this state for a temporary or transitory purpose. (Rev. & Tax. Code, section 17014.)

Accordingly, the key question under either facet of the “resident” definition is whether the individual is present in California, or absent from California, for a temporary or transitory purpose. (Appeal of Stephen D. Bragg, supra.) This determination cannot be based solely on the individual’s subjective intent, but must instead be based on objective facts. (Appeal of Anthony V. and Beverly Zupanovich, 76-SBE-002, Jan. 6, 1976.) In situations where an individual has significant contacts with more than one state, the state with which the individual maintains the closest connections during the taxable year is the state of residence. (Cal. Code Regs., tit. 18, section 17014, subd. (b); Appeal of Raymond H. and Margaret R. Berner, 2001-SBE-006-A, Aug. 1, 2002.) In the Appeal of Stephen D. Bragg, supra, this Board reiterated the purpose of the residency rules, to ensure that all individuals who are in California for other than a temporary or transitory purpose, enjoying the benefits and protection of the state, should in return contribute to its support. (Cal. Code Regs., tit. 18, section 17014, subd. (a); Whittell v. Franchise Tax Board (1964) 231 Cal.App.2d 278). In the Appeal of Bragg, supra, the Board compiled a non-exhaustive list of objective factors helpful in the determination with which state an individual maintains his closest connections. Those factors include:

º The location of all of the taxpayer’s residential
real property, and the approximate sizes and values
of each of the residences;

º The state wherein the taxpayer’s spouse and children
reside;

º The state wherein the taxpayer’s children attend
school;

º The state wherein the taxpayer claims the homeowner’s
property tax exemption on a residence;

º The number of days the taxpayer spends in California
versus the number of days the taxpayer spends in
other states, and the general purpose of such days
(i.e., vacation, business, etc.);

º The location where the taxpayer files his tax returns,
both federal and state, and the state of residence
claimed by the taxpayer on such returns;

º The location of the taxpayer’s bank and savings accounts;

º The state wherein the taxpayer maintains memberships
in social, religious, and professional organizations;

º The state wherein the taxpayer registers his automobiles;

º The state wherein the taxpayer maintains a driver’s
license;

º The state wherein the taxpayer maintains voter registration,
and the taxpayer’s voting participation history;

º The state wherein the taxpayer obtains professional
services, such as doctors, dentists, accountants,
and attorneys;

º The state wherein the taxpayer is employed;

º The state wherein the taxpayer maintains or owns
business interests;

º The indications in affidavits from various individuals
discussing the taxpayer’s residency;

º The taxpayer’s telephone records (i.e., the origination
point of taxpayer’s telephone calls);

º The origination point of checking account transactions
and credit card transactions;

º The state wherein the taxpayer holds a professional
license or licenses; and

º The state wherein the taxpayer owns investment real
property.

Domicile

The California Court of Appeal and the FTB’s regulations define “domicile” as the location where a person has the most settled and permanent connection, and the place to which a person intends to return when absent. (Whittell v. Franchise Tax Board, supra, at 284; Cal. Code Regs., tit. 18, section 17014, subd. (c).) An individual may claim only one domicile at a time. (Cal. Code Regs., tit. 18, section 17014, subd. (c).) An individual who is domiciled in California and leaves California 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 why he or she is absent from California. (Cal. Code Regs., tit. 18, section 17014, subd. (c); See also Appeal of Robert J. Addington Jr, 82-SBE-001, Jan. 5, 1982.) To change domicile, a taxpayer must actually move to a new residence and intend to remain there permanently or indefinitely. (In re Marriage of Leff (1972) 25 Cal.App.3d 630, 642; Estate of Phillips, supra, at 659.) While an individual’s intent will be considered when determining domicile, intent will not be determined merely from unsubstantiated statements; the individual’s acts and declarations will also be considered. (Appeal of Joe and Gloria Morgan, 85-SBE-078, July 30, 1985.)

Burden of Proof

An FTB’s assessment is presumed correct, and a taxpayer has the burden of proving it to be wrong. (Todd v. McColgan (1949) 89 Cal.App.2d 509; Appeal of Ismael R. Manriquez, 79-SBE-077, Apr. 10, 1979.) In particular, the FTB’s determination of residency is also presumptively correct. (Appeals of John R. Young, 86-SBE-199, Nov. 19, 1986.) The party asserting a change in domicile bears the burden of proving such change. (Sheehan v. Scott (1905) 145 Cal. 684; Appeal of Terance and Brenda Harrison, 85-SBE-059, June 25, 1985.) If there is doubt on the question of domicile after the facts and circumstances have been presented, domicile is presumed not to have changed. (Whitmore v. Commissioner (1955) 25 T.C. 293; Appeal of Anthony J. and Ann S. D’Eustachio, 85-SBE-040, May 8, 1985.) California Code of Regulations, title 18, section 17014, subdivision (d)(1), states that the type and the amount of proof required to show domicile cannot be specified by general regulation, but will depend largely on the circumstances of each particular case. In the case of individuals who claim to be nonresidents by virtue of being outside of the state for other than temporary or transitory purposes, affidavits of friends and business associates as to the reasons for being outside of the state should be submitted. (Id.) An appellant’s failure to produce evidence that is within his control gives rise to a presumption that such evidence is unfavorable to his case. (Appeal of Don A. Cookston, 83-SBE-048, Jan. 3, 1983.)

Late Filing Penalty

R&TC section 19131 provides that a late filing penalty shall be imposed when a taxpayer fails to file a tax return on or before its due date, unless the taxpayer establishes that the late filing was due to reasonable cause and was not due to willful neglect. The penalty is computed at five percent of the tax due, after allowing for timely payments, for every month that the return is late, up to a maximum of 25 percent. (Rev. & Tax. Code, section 19131.) To establish reasonable cause, the taxpayer “must show that the failure to file timely returns occurred despite the exercise of ordinary business care and prudence, or that cause existed as would prompt an ordinary intelligent and prudent businessman to have so acted under similar circumstances.” (Appeal of Howard G. and Mary Tons, 79-SBE-027, Jan. 9, 1979.) The burden is on the taxpayer to prove that the difficulties experienced prevented him or her from filing a timely return. (Appeal of Michael E. Myers, 2001-SBE-001, May 31, 2001.) Unsupported assertions are not sufficient to satisfy a taxpayer’s burden of proof. (Appeal of Aaron and Eloise Magidow, 82-SBE-274, Nov. 17, 1982.)

Discussion

Appellant claims that he changed his domicile from California to Nevada sometime prior to the 2007 tax year and that he was in California in 2007 for the temporary or transitory purpose of getting a divorce. Respondent contends that appellant has been a longtime California domiciliary and resident prior to the 2007 tax year and that appellant’s Nevada activities were temporary or transitory so that appellant remained a California resident in the 2007 tax year.

Domicile

Although appellant claims that he was domiciled in Nevada prior to and during the 2007 tax year, the evidence establishes that appellant’s most settled and permanent connections were with California and not Nevada. In addition, appellant returned to California after a brief period in Nevada.

Appellant had the following connections to California in 2006 and 2007: (1) appellant had access to a home in West Hills, California, which he owned, but quitclaimed to his spouse in 2005; 6 (2) the divorce was filed in California; (3) according to the MSA, appellant’s minor children considered California their home state and the children resided in California for at least six months prior to September 19, 2007; (4) appellant filed a 2005 California resident return; 7 appellant listed a Sherman Oaks, California address on his 2006 California resident tax return; (5) appellant listed a Los Angeles, California address on his 2007 California nonresident tax return; (6) appellant employed California tax preparers to file his 2006 and 2007 tax returns; (7) appellant listed a Sherman Oaks, California address on his Nevada driver’s license covering the 2006 and 2007 tax years; (8) appellant used multiple California addresses for the 2007 tax year; (9) appellant registered a vehicle in California in 2007; (10) appellant purchased a new vehicle in California in 2007 and registered the new vehicle in California in 2008; (11) appellant held interests in two corporations, Absolute Stone & Marble, Inc., and Mordy’s Construction, Inc., that appear to be located in Encino, California; and (12) appellant used multiple California mailing addresses.

In addition, the evidence presented shows that appellant had the following connections to Nevada in 2006 and 2007: (1) two leases for the same apartment in Las Vegas for the period December 6, 2005 to November 30, 2008, one of which appears to have been voided on September 4, 2006; 8 (2) appellant paid for utilities for the Las Vegas apartment up to October 2006; 9 (3) appellant had Nevada driver’s licenses covering the period of December 31, 2005 through January 5, 2014; (4) appellant registered a leased vehicle with the Nevada DMV and had Nevada car insurance for that vehicle with an expiration of July 3, 2007, at the latest; (5) appellant was registered to vote in Nevada; and (6) appellant held interests in Riverside Vista Del Rio, LLC and Riverside Developments, LLC, two limited liability companies that appear to be located in Las Vegas, Nevada.

Although appellant claims that he followed the erroneous advice of his tax preparer in filing a 2006 resident income tax return and that he was a Nevada domiciliary in 2006, appellant has not explained why he was precluded from filing an amended 2006 income tax return to correct this alleged error. Furthermore, appellant’s eventual return to California and use of the California court system, rather than Nevada’s court system, to process his divorce supports finding that appellant remained a domiciliary of California in 2006 and 2007. Although it appears that appellant was briefly in Las Vegas, Nevada, in 2006, the records relating to utilities for the Las Vegas apartment reflect that appellant left Las Vegas, Nevada, prior to the end of 2006. In addition, appellant’s Las Vegas apartment lease was voided as of September 4, 2006, and appellant has not provided any evidence of residing in another residence in Nevada for the remaining part of 2006 and all of 2007. According to the MSA, appellant and his former spouse were California residents at least six months prior to the filing of the petition for dissolution of marriage on September 19, 2007, appellant’s minor children resided in California for six months prior to the filing of the petition for dissolution of marriage, and the home state for appellant’s minor children was California. In contrast, appellant and his family had access to a single family home in West Hills, California. Moreover, it appears that appellant remained in California after the divorce as he used a California address in filing his 2007 nonresident return and he filed a 2008 California resident tax return. Therefore, it appears that appellant returned to California sometime after September 4, 2006, and at the latest by March 2007 (i.e., six months prior to the filing of the petition for dissolution of marriage on September 19, 2007). Accordingly, appellant failed to show that he intended to remain in Nevada permanently or indefinitely. Therefore, appellant remained a domiciliary of California in 2006 and 2007.

Residency

As appellant was domiciled in California, the next question is whether appellant was outside of California for a temporary or transitory purpose in 2007. The key question is which state did appellant maintain the closest connections during the taxable year. (Appeal of Stephen D. Bragg, supra.) Here, the evidence clearly supports that appellant maintained the closest connections with California rather than Nevada during the 2007 tax year.

Residence: Appellant had access to a residence in California, but not in Nevada in 2007. Specifically, appellant had access to a single family home in West Hills, California, which appellant had owned but quitclaimed to his former spouse after they were married. In contrast, appellant merely provided two leases for the same Las Vegas, Nevada apartment, one of which appears to have been voided prior to 2007, on September 4, 2006. With regard to the second lease, which was entered into between appellant, his former spouse, and the Las Vegas landlord, this lease was not identified as a liability in the MSA. In addition, appellant provided no evidence of paying rent based on either of the two leases. Appellant’s lack of a Nevada residence after September 2006 is supported by appellant’s lack of records, such as bills for lawn care, telephone service, and other services after October 2006. While there are bank statements and billing invoices which show the payment of utilities for the Las Vegas apartment up to October 2006, appellant has not provided any evidence of utilities paid for this apartment during the 2007 tax year. Appellant has not alleged that he lived in another Nevada residence for the 2007 tax year other than the Las Vegas apartment appellant apparently vacated in late 2006. This factor supports a finding that appellant was a resident of California.

Location of where appellant’s spouse and children reside: The MSA indicates that appellant’s minor children and former spouse resided in California for at least six months prior to appellant and his former spouse’s filing of the petition on September 19, 2007. As such, the minor children considered California their home state. 10 This factor also supports a finding that appellant was a resident of California.

Tax return information: Appellant filed his 2006 California resident tax return in 2007 using a California address and a California tax preparer. In addition, while the 2007 return was filed in 2008, appellant used a California address and a California tax preparer. While appellant’s Schedule K-1 from Riverside Developments, LLC listed appellant’s Las Vegas, Nevada address as appellant’s mailing address, appellant also received Schedule K-1’s from Mordy’s Construction, Inc. and Absolute Stone & Marble, Inc. at an address in Encino, California. In addition, appellant engaged in day trading from January 3, 2007 through August 29, 2007, and his Form 1099-Bs were sent to the same Encino, California address. Appellant also received a Form 1098 for mortgage interest addressed to him in Agoura Hills, California. This factor supports a finding that appellant was a resident of California.

Vehicle Registration: Appellant purchased a 2007 Mercedes in California in June of 2007 and registered it in California in May of 2008. Appellant also registered a 2005 Lexus in California in October 2007. Appellant retained the ownership of both vehicles after his separation. In contrast, appellant, while a California resident, registered the 2005 Dodge Ram in Nevada in December 2005 with an expiration date of December 12, 2006. All of the insurance cards for the 2005 Dodge Ram expired in early to mid-2007. It is not clear whether appellant still possessed the Dodge Ram in 2007 as it was not listed as an asset or a liability in the MSA. In contrast, appellant possessed two vehicles in California during 2007. This factor supports a finding that appellant was a resident of California.

Driver’s License: Although appellant obtained a Nevada driver’s license on December 28, 2005, and renewed the license on January 8, 2010, appellant was a California resident in 2005, 2006, and 2008, when he held the Nevada license. Moreover, we note that the Nevada driver’s license covering the 2007 tax year listed a Sherman Oaks, California address as well as the Las Vegas, Nevada apartment address, which appellant apparently vacated in late 2006. This factor supports a finding that appellant was a resident of California.

Voter Registration: Although appellant registered to vote in Nevada in 2005, there is no evidence demonstrating whether appellant ever voted. This factor does not favor residency in either California or Nevada.

Professional Services: Appellant used California tax preparers to prepare his 2007 tax return. In addition, appellant stated that he and his former spouse used the same California attorney to process their divorce. Absent any other evidence of professionals that appellant may have used during the 2007 tax year, this factor supports a finding that appellant was a California resident.

Business interests: In the 2007 tax year, based on appellant’s wage and income transcript, appellant held interests in the following entities: Riverside Vista Del Rio, LLC, Riverside Developments LLC, Absolute Stone & Marble, Inc, and Mordy’s Construction, Inc. While the Riverside Vista Del Rio LLC and Riverside Developments, LLC appear to be located in Las Vegas, Nevada, Absolute Stone & Marble, Inc., and Mordy’s Construction, Inc. appear to be located in Encino, California. This factor shows connections to both California and Nevada and, as a result, does not favor either state.

Trips to Israel: While appellant provided a letter from his mother which discusses appellant’s travel to Israel several times during the 2007 tax year, this information is not helpful in determining whether appellant was a resident of California or Nevada in 2007. Although appellant provided a copy of his passport substantiating his travels, he did not provide any evidence of the origination point of his travels which would have been relevant in determining whether appellant used California or Nevada as his origination or return points of this travel. Therefore, these facts and circumstances do not favor residency in either California or Nevada.

Based on the above analysis of the Bragg factors 11 and the additional facts and circumstances presented, we find that appellant’s closest connections throughout 2007 were with California. The MSA supports a finding that appellant took advantage of the laws and protections of California in 2007. His minor children considered California their home state. In addition, appellant has not shown that he resided in Nevada during 2007, as he did not provide any evidence of living quarters in Nevada, such as payments for rent and utilities. Furthermore, in 2007, appellant registered a vehicle in California and subsequently purchased a new vehicle in California, which he retained pursuant to the MSA. Accordingly, appellant was a resident of California and his absences from California were for a temporary or transitory purpose in the 2007 tax year.

Late Filing Penalty

Appellant contends that his divorce and subsequent mental problems prevented him from filing a timely return. Appellant and his former spouse filed for dissolution of their marriage in September of 2007 and the MSA was completed in January of 2008. Appellant has not demonstrated that his divorce and alleged mental illness prevented him from timely filing his return by the original due date of April 15, 2008, or by the extended due date of October 15, 2008. Accordingly, appellant has not demonstrated that reasonable cause existed for the late filing of his tax return.

CONCLUSION

Based upon the foregoing, the FTB’s action is modified to reflect the concession by the FTB that it will abate the failure to furnish information penalty. The FTB’s action is otherwise sustained.

FOOTNOTES:
n1
Respondent originally imposed a failure to furnish penalty of $ 102,850, in addition to the late filing penalty of $ 102,850. Upon further consideration, respondent will abate the failure to furnish information penalty. Only the late filing penalty remains at issue.
n2
Appellant asserts that he was a Nevada domiciliary and resident in 2006.
n3
According to the Marital Settlement Agreement, appellant owns a twenty percent stake in Riverside Developments, LLC. According to the Seller’s Closing Statement relating to the sale, Riverside Developments, LLC is a Nevada limited liability company.

n4
According to the MSA, appellant and his former spouse were married on February 15, 2005.

n5
We note that the MSA indicates that appellant’s former wife filed the petition for dissolution of marriage on September 19, 2007, and appellant was personally served on October 5, 2007. The MSA further indicates that the minor children considered California their home state as they resided in California for six months prior to the filing of the petition of dissolution.

n6
We note that appellant has not alleged or shown that he had no access to this West Hills, California residence.

n7
We note that respondent did not submit a copy of appellant’s 2005 California resident tax return. However, appellant has not alleged that he did not file a California resident return for 2005.

n8
Appellant did not provide any evidence of rent payments for either one of the leases.

n9
According to an October 3, 2006 statement for telephone service, local telephone service related to the Las Vegas apartment was removed sometime in the period of September 7, 2006 to October 3, 2006.

n10
We note there is nothing in the record discussing where the children attended school.
n11
Appellant did not provide any evidence or discussion of the remaining Bragg factors for the 2007 tax year.

This entry was posted in State Tax and tagged , , , , , , , , , , , . Bookmark the permalink.