The Issue After years of wrangling with the issue, California has just enacted legislation to eliminate a state income tax savings strategy some California residents have pursued by establishing a non-grantor gift trust (ING). These trusts are often called WINGs, DINGs, and NINGS, a reference to the three states that first marketed them: Wyoming, Delaware, and Nevada. INGs can offer significant federal estate planning advantages. But they also allow residents of states with high income-tax rates, like California, to avoid paying state taxes on undistributed non-California-source income. The i ..read more

The Issue ​If you’re in the habit of reviewing California residency cases (and only a tax attorney specializing in the field or a masochist would be), you will occasionally come upon a reference to the Franchise Tax Board’s “Integrated Nonfiler Compliance” system, sometimes called the INC program. The court opinion will mention that the audit was initiated under INC and move on from there. This article discusses how this somewhat secretive program works, and how it affects a nonresident’s risk of a residency audit. Good News, Bad News The good news is that nonresidents are often in control of ..read more

  The Issue With the rise of e-commerce, advanced telecommunications, and the new prevalence of remote work due to the COVID emergency, more and more people are choosing the option of living in one state while working for an employer in another, without ever setting foot at the employer’s place of business. The possibilities for reducing state income taxes through this scenario haven’t been lost on founders, hi-tech C-suite, and other key employees in California. By moving across state borders and working for a California business (or even running it) through Zoom and other telecommunica ..read more

The Issue ​Nonresidents who own vacation homes, business interests, financial accounts, or have other significant contacts in California can receive a notice from the Franchise Tax Board, California’s tax enforcement agency, demanding they file a tax return or explain why they aren’t required to. The official notice number is 4600; hence the name “4600 Notice.” It’s also called a “Request for Tax Return,” since the verbiage has appeared in bold on the Notice since about 2017. If a nonresident owns a second home or uses some other address in California, the Notice is often mailed ..read more

What’s Happening? There’s a noteworthy residency-related Easter egg in the criminal tax fraud indictment against the Trump Organization and its CFO, Allen Weisselberg. The complaint includes the charge that Weisselberg fraudulently failed to file tax returns as a New York City resident, thus evading the municipality’s income tax on the city’s inhabitants. Monetarily, it’s one of the lesser offenses. It isn’t even mentioned in much of the media coverage. But it shines a spotlight on a question that sometimes arises in California residency tax planning: are there criminal tax fraud risks in ass ..read more

A new case from California’s Office of Tax Appeals brings some clarity to how strictly California dates a change of residency for income tax purposes when a resident moves out of state shortly before a liquidity event. The case, Appeal of J. Bracamonte, OTA, Case No. 18010932 (May 2021), emphasized the importance of how much time a resident spends in California after the purported move. Bracamonte also sheds light on the “interim home” problem, which occurs when a resident moves into an out-of-state rental pending purchase of a permanent home in their new home state, while retaining ownership ..read more

E-commerce, advanced telecommunications, and the new prevalence of remote work have combined to give many married couples more flexibility in their working and living arrangements than in the past. One of these options, rare until recently, is for spouses to assert they live in different states for tax purposes. An increasing number of marriages have the mobility to allow one spouse to reside in California, while the other elects to establish or maintain legal residency elsewhere. This is especially true for high-income couples, where supporting two households is economically feasible, one spo ..read more

You don’t have to be a tax lawyer to know that the way to avoid becoming a resident of California is to spend less than six months in the state during any calendar year. Right?  Well, not exactly. The “six-month presumption,” as it’s called, which is mentioned in one form or another in almost every Google search result of California residency rules, isn’t all that it’s cracked up to be. That’s not to say the amount of time spent in California doesn’t play an important role in determining legal residency. Just the opposite. It’s critical. But the real rule is more complex and has to be un ..read more

The non-fungible token market has become as hot as a recalled MacBook lithium battery (if that’s possible). You’ve probably seen the figures: digital artist Beeple sold an NFT for $69 million; a LeBron James non-fungible dunk clip lasting ten seconds went for $200,000; Jack Dorsey’s first tweet was auctioned at over $2.5 million. Various funds and exchanges now count NFT transactions in the hundreds of millions of dollars. The lucky beneficiaries of the market have surely taken into consideration federal taxes. But if they are nonresidents of California, they may not be thinking of how Calif ..read more

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