It may be said that the classic phrase “love means nothing to a tennis player” applies equally to tax practitioners. To counter this affront, in belated observance of Valentine's Day, this column celebrates the case of a man who was able both to reunite with his high school sweetheart in Paris and also to prevail over the claims of the New York State Department of Taxation and Finance. In a case from last summer, the administrative law judge (ALJ) in Stephen C. Patrick, et al., DTA Nos. 826838, 826839 (N.Y. Div. Tax App., June 15, 2017), determined that petitioner had changed his domicile to Paris from New York. This case may be heartening to the many taxpayers who, due to the recently enacted limitations on deductions for state and local taxes, are now considering moving their domicile out of New York. Keep in mind, however, that the petitioner in this case had unusual (and unusually helpful) facts.

Petitioner Stephen C. Patrick and Clara Scurati-Manzoni first met at a dance in 1965 and became high school sweethearts in Mamaroneck, N.Y. After high school, petitioner went to West Point Prep and Clara went to a nunnery in Italy. About a year and a half after their geographic separation, Clara announced she was marrying another man. The couple did not communicate for some four decades thereafter.

In the intervening years, petitioner married another woman and settled in Connecticut, where he raised four children. For more than 30 years, petitioner worked at The Colgate-Palmolive Company, culminating in petitioner's role as chief financial officer (and, briefly, vice chairman) of Colgate. In January 2008, petitioner separated from his wife and moved into an apartment in Manhattan. Petitioner sold his home in Connecticut shortly thereafter. At first, petitioner rented an apartment in Manhattan. To furnish the apartment, petitioner purchased the furniture that was on display in the apartment (which was a model unit) as “it was the easiest way to move in.” Taxpayer considered the apartment to be “a residence for me to sleep near [Colgate's offices].” Petitioner had no friends or family in New York; his children lived in other parts of the country or the world. Petitioner's friends and community ties (such as country club membership) remained in Connecticut.

At some point after marrying, Clara had moved to Paris, where she continued to live with her husband and child. Through Clara's elderly uncle, petitioner was able to reconnect with Clara. Clara visited petitioner in Manhattan in April 2008. Clara informed her husband that she was divorcing him several days after reuniting with petitioner in Manhattan.

Clara continued to live in Paris since her son was still at home. However, as petitioner intended to retire from his job no earlier than 2012, he could not yet move to Paris. Late in 2008, petitioner bought a $3.8 million apartment in Manhattan “so that Clara would be comfortable when she visited” and “as an investment.” The only change petitioner made to the apartment upon acquisition was repainting the walls. His only “near and dear” item in the apartment was his collection of antique watches. Petitioner and Clara finalized their respective divorces and married one another in 2009.

In October 2010, petitioner purchased a $3.2 million apartment in Paris, to which he made $210,000 in renovations. Petitioner moved his watch collection into the Paris apartment. In March 2011, in part due to a “serious medical condition,” petitioner retired from Colgate ahead of schedule. He continued to serve on assorted boards of directors, some of which met in New York from time to time. However, he immediately moved to Paris. Once in Paris, he applied for permanent resident status, obtained a French driver's license, and began to pay French income and wealth taxes. He and Clara began to travel the world.

Related to his serious medical condition, petitioner continued to receive medical treatment in New York. Some of these treatments required several days of recuperation. Petitioner's principal doctor was unable to recommend anyone in France who could administer the same treatments. Additionally, petitioner would often travel through New York when going to visit family or attending board meetings in the United States. Due to his medical treatments and travel, petitioner spent twice as much (or more) time in New York as Paris in 2011 and 2012 (the years at issue). In January 2015, the Department issued a Notice of Deficiency to petitioner, claiming that he owed additional taxes on the theory that he remained a domiciliary of New York.

New York subjects individual residents to tax on their worldwide income (N.Y. Tax Law §§601(a)-(c), 611(a), 612(a)), whereas it subjects individual nonresidents to tax only on their New York-source income (N.Y. Tax Law §601(e)). An individual may be a resident of New York by virtue of either (1) being a “statutory resident” or (b) having his “domicile” in New York (N.Y. Tax Law §605(b)(1)). Statutory residence is an objective test that looks to whether an individual (1) has a “permanent place of abode” in New York and (2) spends at least 183 days in a particular year in New York. Id. Domicile is a more subjective matter; it is, generally, “the place which an individual intends to be such individual's permanent home.” 20 N.Y.C.R.R. §105.20(d)(1) (emphasis added). However, as stated by the Tax Appeals Tribunal in James E. Simon, DTA No. 801309 (N.Y. Tax App. Trib., March 2, 1989) (cited in the instant matter), a “taxpayer must prove his subjective intent based upon the objective manifestation of that intent displayed through his conduct” (emphasis added).

Petitioner was able to support his assertion that he considered his Paris apartment to be home. Petitioner's wife (and stepson) resided in the Paris apartment, and petitioner had no family in New York. Additionally, petitioner took certain affirmative actions with respect to his Paris home, such as making substantial renovations (which he did not do to his New York apartment) and moving his near and dear watch collection to Paris. Petitioner also applied for permanent resident status, obtained a driver's license, and paid French taxes. The ALJ was persuaded that much of the time that petitioner spent in New York was needed for medical treatment that he could not receive elsewhere. The ALJ did not find the occasional board meeting in New York to be material in considering whether petitioner had business ties to New York. On these facts, the ALJ determined that petitioner properly manifested the intent to move his domicile to Paris (and ceased to be a New York domiciliary).

While this case is a victory for taxpayers desiring to move their domicile outside of New York while retaining a New York home, it must be contrasted with “typical” facts of such taxpayer.

First, petitioner's spouse in the case resided in Paris, the place that petitioner asserted as his domicile, and the remainder of petitioner's family lived outside of New York. As a result, the presumption in the regulations that spouses have the same domicile worked in his favor. See 20 N.Y.C.R.R. §105.20(d)(5)(i).

Second, in the instant matter, petitioner's life in New York was somewhat transitory, and he had few personal or communal ties to New York. Before moving to New York, petitioner had spent decades in Connecticut, where many friends and his country club remained. He lived in New York only briefly in comparison, and seemed to have only business (rather than personal and community) ties.

Additionally, where a taxpayer has lived in a New York home for decades, it is likely that a taxpayer would have invested a significant amount in furnishing, renovation, and upkeep of the home. Petitioner's actions in the instant matter were inconsistent with such behavior; he treated the furnishing of his New York apartments in a transactional and functional manner. (In particular, when contrasted with his home in Paris.) Again, a careful taxpayer could mitigate this factor by investing meaningfully in his “new” home outside of New York, and, perhaps, by downsizing his New York home.

Lastly, petitioner had reasons to be in New York other than being “at home.” Petitioner's medical care was principally in New York; additionally, petitioner traveled through New York on his way to points elsewhere. (As an aside: It is interesting that the State did not raise statutory resident issues; given on the day counts provided, it is conceivable that petitioner was a statutory resident for at least one year at issue.)

The highlight of this case is that it shows that love can be the overriding fact that proves a change of domicile. Unfortunately, love can cut both ways. With respect to New York domiciliaries contemplating a change of domicile to Florida, for example, it is common for one spouse to have a strong desire to leave New York to achieve the resulting tax savings while the other spouse is less obsessed with taxes and prefers to remain in New York. In most cases it will be extremely difficult to prove a change of domicile unless both spouses are prepared to change their lifestyles. Those persons may have to learn to accept the fact that love is more important than taxes.

Joseph Lipari is a partner in the law firm of Roberts & Holland. He is not, however, the author of the book, Isn't That Romantic. Aaron S. Gaynor, an associate at the firm, co-authored this article but also had no involvement in the writing of the book.