Some basic facts. From January to November 1, 2014, the taxpayer rented an apartment in New York City while he was working for Nassau Community College, in a position that transitioned from temporary to permanent at the end of 2014. Originally from California, the record (though a little spotty) reflected that he “stayed with a friend” while in New York in November. He also closed on the purchase of a different apartment in New York on December 3, 2014, but he didn’t move in or stay there at all until early January 2015.
So there were a few questions here. Is 10 months enough for a place to be a PPA? Did the taxpayer’s friend’s place constitute a PPA? And did his new place that he closed on in early December constitute a PPA in December?
First off, chalk up another win for the “11-month rule!” The Tribunal blessed the Tax Department’s policy that in order for a taxpayer to be deemed to have maintained a PPA for “substantially all of the tax year” as the regulations require under the statutory residency test, they have to have a place for more than 11 months of the year. And (at least in that case), ten months was not enough. Oddly enough, the tax department changed its audit guidelines last December to make this a 10-month rule, but that change only applies to tax years starting in 2022, so Mr. Pilaro dodged a bullet there.
More importantly, though, the Tribunal’s ruling provides a few more helpful and taxpayer-friendly guardrails for PPA determinations. First, the Tribunal’s holding (on what the Tribunal even admitted was a light record) that the taxpayer’s occasional use of his friend’s place was not sufficient to confer PPA status highlights an important point about the “burden of proof” in these tax cases. Namely, that while the burden of proof is on the taxpayer to prove his case, it need not be an unreasonable burden. In the proceedings below, the ALJ dinged the taxpayer for the lack of evidence around his friend’s place, holding that it was a PPA merely because the taxpayer didn’t provide much evidence about the place. But the Tribunal rightly took issue with that, noting that not even the Division had argued that the friend’s place could’ve been a PPA for the taxpayer. So why would the Tribunal ding the taxpayer for not providing more evidence on that point? Good on the Tribunal for making the call.
The other important PPA point surrounds the new place that the taxpayer purchased in December 2014. The ALJ held as a fact that this was a PPA beginning on the date the taxpayer bought the place. But not so fast…..ever hear of the Gaied case? Pursuant to Gaied (and the more recent Obus case), the Tribunal recognized that to qualify as a PPA, the taxpayer needs to have a “residential interest” in the property, meaning that the “taxpayer must have utilized the dwelling as his or her residence, and that “a subjective analysis of the taxpayer’s use of the dwelling, including the nature and duration of such use,” determines if a taxpayer has a residential interest in the property. Based on that standard, because the taxpayer didn’t use the new place at all in 2014, the Tribunal found that it could not be a PPA for him in 2014, even though he could have stayed there, and even though it was his PPA (and indeed became his domicile) in January 2015.
So, wow, what a win! For years we’ve battled residency cases where the tax department has tried to confer PPA status where taxpayers maintained tenuous connections to New York living quarters. But following the Gaied line of reasoning, cases like Obus and now Pilaro are adding a much-needed dose of reasonableness to PPA determinations. It’ll be very interesting to see how far this line of reasoning goes in future statutory residency cases.
