Federal and State Tax Residency Rules: Latest IRS Examination Guidance and Navigating State Tax Regulations

Advising taxpayers on issues relating to residency has become even more cumbersome. The IRS LB&I unit has issued examination guidance focused on taxpayer residency and the application of U.S. income tax treaties. State tax residency rules and an increase in state audits and enforcement require tax professionals to become knowledgeable of new state residency and allocation issues to implement effective tax planning strategies for taxpayers.

Federal tax residency rules applicable to individuals or businesses are relatively straightforward but can be burdensome to evaluate depending on the facts and circumstances. Tax treaties seek to eliminate or reduce double income taxation, and benefits are available to nonresident aliens and U.S. citizens living abroad under some conditions. Due to the critical nature of residency for tax purposes, taxpayers must understand residency rules and applicable tax treaties that will determine if they are subject to taxation, the necessary forms to file, and if they qualify for any exemptions.

Also, state regulatory challenges to taxpayer residency and overcoming them is an obstacle faced by many individuals with dual residency between states or by companies operating in multiple jurisdictions. State residency determination is based on more than declarations or physical presence in the state, and the burden of proof falls on the taxpayer in such cases. This fact is typically learned the hard way by taxpayers resulting in the endangering of assets and being subject to tax liability that could have been limited or avoided with careful planning.

Listen as our panel discusses key components of federal and state residency rules, state residency and allocation challenges, and effective tax planning techniques to limit unintended tax liability and manage nonresident audits.

1. Federal residency rules
   1. IRC Section 7701(b) and substantial presence
   2. Tax treaty residency
   3. Exceptions based on facts and circumstances
   4. Recent IRS examination guidance
2. State regulatory challenges; new allocation and residency issues
   1. California residency rules and guidelines
   2. New York domicile test and critical factors
   3. Florida and other non-personal income tax states
3. Managing nonresident audits
4. Tax planning techniques and best practices for dual resident taxpayers and multistate companies

The panel will discuss these and other key issues:

• Recognizing the importance of both citizenship and residence in determining tax liabilities of individuals
• Purposes of income tax treaties and their applicability
• Common residency provisions and tiebreakers for dual residents
• Allocating income between jurisdictions
• Principal items targeted by state regulatory authorities
• California tax residency rules and guidelines
• New York domicile test and primary factors in determining tax residency
• Dual residency issues with non-personal income tax states
• Preparation for nonresident audits
• Current planning techniques and best practices for tax professionals

Learning Objectives

After completing this course, you will be able to:

• Recognize the importance of both citizenship and residence in determining tax liabilities of individuals
• Identify components of U.S. tax treaties and their applicability
• Acquire methods for allocating income between jurisdictions in accord with new residency rules
• Recognize items targeted by state regulatory authorities
• Understand issues for an individual with dual residency with non-personal income tax states
• Ascertain methods for handling nonresident audits

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules; supervisory authority over other preparers/accountants. Specific knowledge and understanding of partnership tax rules, corporate structure, and state audit and tax regulations.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).