Suggestions needed - Pennsylvania preparers

[FEDUKE404]

A long-term client will likely see his (specific) job moved from NC to PA late in 2013 or early in 2014.

The most likely scenario will be for a continuation of domicile in NC (including spouse + children). For the PA job, an apartment will be rented, or perhaps a home purchased. The married couple can legally acquire a "second home" without problems. It is unlikely the job could be deemed "temporary," so there are no related issues with deductible living expenses. The 2013 and/or 2014 W2 will show both NC and PA wages for the employee.

The couple would prefer to maintain their NC residency, for any number of unrelated reasons. "Commuting" of some type (such as bi-monthly) is the most likely eventual scenario. They will continue filing (US/NC) as MFJ, and report all income on both of those returns.

MAIN QUESTION: For purposes of PA, what restrictions fall upon meeting the guidelines for filing a NON-resident PA return? Would these facts justify such a filing? If so, what event(s) would no longer allow the client to file as a non-resident for the PA income? Or could the client do so indefinitely with the facts presented?

RELATED QUESTIONS: Assuming spouse likely will never have any PA employment income, what filing status would/could be used for the PA NR return? If PA status is different from expected MFJ, how is that handled for PA? IIRC, the PA tax return is fairly uncomplicated for a scenario such as this, with basically only "wage" income a factor. I do recall PA allows virtually all "business" expenses as a reduction in taxable income, but also disallows certain retirement plan contributions, i.e. PA wage income may be higher than the IRS wage income. Am I close?

There are still unknown facts that may be relevant, but for now I would appreciate some input from a PA preparer who could offer some guidance and/or planning suggestions.

Thanks greatly!

FE

[Bees Knees]

From TTB, All States Edition, page PA-2:

Resident. Defined as a person that is either domiciled in Pennsylvania
or has a permanent abode in PA and spends a total of
183 or more days in PA.

Thus even if the taxpayer wants to say he/she is domiciled in NC, the fact that the taxpayer has a home in Pennsylvania and is physically present in the State for 183 or more days makes him/her a PA resident for tax purposes.

It is also possible for a person to be a resident of more than one State for tax purposes. For example, the taxpayer could by a resident of NC due to being domiciled in NC, and also a resident of PA due to the 183 day rule.

[FEDUKE404]

Dealing with PA residency issue

From TTB, All States Edition, page PA-2:

Thus even if the taxpayer wants to say he/she is domiciled in NC, the fact that the taxpayer has a home in Pennsylvania and is physically present in the State for 183 or more days makes him/her a PA resident for tax purposes.

It is also possible for a person to be a resident of more than one State for tax purposes. For example, the taxpayer could by a resident of NC due to being domiciled in NC, and also a resident of PA due to the 183 day rule.

I generally (first) try to go directly to the source, i.e. Pennsylvania Department of Revenue, in lieu of relying solely on TTB.

A more useful piece of information is the "Determining Residency for PA Personal Income Tax Purposes ( REV-611.pdf )" brochure, which can be accessed at this website --->>http://www.portal.state.pa.us/portal...2/2012/1072141

While the "183 day rule" cited by TTB is relevant, there can be some confusion when determining "permanent abode" and "new domicile."

As stated earlier, for all intents and purposes THE FAMILY will definitely maintain a permanent residence in NC, to include ownership/occupancy of current residence. Spouse will continue to have NC employment, children will attend schools in NC, doctors/voting/church/vehicle registration/etc will all remain in NC. Spouse with PA income is nearing retirement age, and is likely to have PA employment no greater than 2-3 years and perhaps much less. And, of course, for 2013 it will be impossible for that person to "live" in PA for more than 183 days. (Things are still in planning stages.) Would that create PA "non-resident" for 2013 and then PA "resident" for 2014 and beyond??

If I interpreted your response correctly, you are suggesting that (let's say for 2014) this couple could/would file as a full-year resident of both NC and PA? How would that be possible??

I will research the matter further. The "new" job is probable but not yet definite. Perhaps some tax folks from the Commonwealth of PA can check in?

FE

[Bees Knees]

If I interpreted your response correctly, you are suggesting that (let's say for 2014) this couple could/would file as a full-year resident of both NC and PA? How would that be possible??

It is possible to be considered a full year resident of more than one state. What happens is both states want to tax all income from all sources, as a full year resident of their state. You would then take a tax credit on one of the state returns for the income that is double taxed.

I don't know details for NC or PA, other than what is stated in TTB All States Edition.

I do know our governor for MN wanted to lower our 183 day threshold to make more seasonal residents with summer lake homes subject to full year resident taxation, which would have obviously made them subject to full year resident taxation in two states. His theory was we have all these people coming into our state for two or three months out of the year, using state services, and not paying income taxes. Those opposed to the idea pointed out that seasonal home owners pay higher property taxes because they do not qualify for the homestead credit. They also pay state sales tax while physically present in the state.

I'm not sure yet whether that made it in our recent tax law changes for MN.

[Bees Knees]

TTB, All States Edition, page PA-7:

Resident credit for tax paid to another state. Complete PA Schedule G-L (long version) or PA Schedule G-S (short version) for each state or country. The short version can be used if claiming credit for tax on compensation, interest, and dividends only.

TTB, All States Edition, page NC-4:

Credit for tax paid to another state or country. Residents and part-year residents are allowed a credit if income is taxed by both North Carolina and another state. Use Part 1, Form D-400TC, to compute the credit. Attach a copy of the other state's return and a copy of the check or receipt if a balance of tax was paid with the return.

[Gary2]

Presumably, you can only take the credit on one of the two state returns (otherwise you get into a loop, having to update the actual tax liability to the other state with each iteration).

Intuitively, you would take the credit on the return for the state with the higher income tax, since they'll credit the entire amount paid to the other state. But the details of the calculation are so variable that you really need to do it both ways, and then carefully undo the one that you're choosing not to take.

[FEDUKE404]

PA preparer input?

Anyone who regularly prepares PA returns care to weigh in ??

[ChEAr$]

check for private message.

[BP.]

QUESTION: For purposes of PA, what restrictions fall upon meeting the guidelines for filing a NON-resident PA return? what event(s) would no longer allow the client to file as a non-resident for the PA income? Or could the client do so indefinitely with the facts presented?

http://www.portal.state.pa.us/portal/server.pt/community/pa_personal_income_tax_guide/14826

C. Pennsylvania Resident

Residency in Pennsylvania, for tax purposes, may be established in two ways-

1. Domicile in Pennsylvania
If an individual is domiciled in Pennsylvania, he or she is considered a resident
unless he or she meets all three of the following conditionsa.
He or she did not maintain a permanent abode in Pennsylvania for himself or
herself or his or her family; and
b. He or she did maintain a permanent abode outside Pennsylvania throughout
the entire taxable year; and
c. He or she did not spend in the aggregate more than 30 days of the taxable
year in Pennsylvania.

2. Day Test
If taxpayer maintains a permanent abode in Pennsylvania and spends a total of
183 or more days of the taxable year in Pennsylvania, even though he or she is
not domiciled in the Commonwealth, he or she is considered a resident.

D. Pennsylvania Nonresident

An individual is a nonresident for Pennsylvania tax purposes if he or she is not a
resident as defined above

[FEDUKE404]

Permanent abode and other issues involved

http://www.portal.state.pa.us/portal...ax_guide/14826


C. Pennsylvania Resident

Residency in Pennsylvania, for tax purposes, may be established in two ways-

1. Domicile in Pennsylvania
If an individual is domiciled in Pennsylvania, he or she is considered a resident
unless he or she meets all three of the following conditions
a. He or she did not maintain a permanent abode in Pennsylvania for himself or
herself or his or her family;
and
b. He or she did maintain a permanent abode outside Pennsylvania throughout
the entire taxable year;
and
c. He or she did not spend in the aggregate more than 30 days of the taxable
year in Pennsylvania.

2. Day Test
If taxpayer maintains a permanent abode in Pennsylvania and spends a total of
183 or more days of the taxable year in Pennsylvania, even though he or she is
not domiciled in the Commonwealth, he or she is considered a resident.

D. Pennsylvania Nonresident

An individual is a nonresident for Pennsylvania tax purposes if he or she is not a
resident as defined above

Since we're apparently back to the cut/paste approach here (rest assured I've already previously reviewed all of the above, as well as this one ---->>>>
http://www.portal.state.pa.us/portal...12/rev-611_pdf ), confusion still reigns supreme.

As discussed in earlier posts, this person (and family!) will maintain a PERMANENT abode in NC. I use that term to be consistent with what most folks define (using logic) as a "permanent abode."

Regardless, we're still chasing our tail with the obvious conflicts between PA's definitions of "domicile" and "permanent abode."

My answers to above would be:
a) Client will NOT have a "permanent" abode in PA.
b) Client DOES maintain a "permanent" abode (including for spouse and children) outside of PA, namely NC.
c) Client WILL spend more than 30 days of the year working in PA.

The 183 day test applies, once again, to how the PA Dept of Revenue interprets permanent abode.

( Attention is again directed to the Rev-611 2-page brochure above. I would have attached it, but its very small size still exceeds the limits of what TTB will allow as an attachment. )

I am now leaning very strongly toward a non-resident PA return and a resident NC return should this situation eventually develop. (I will have to study more on how it is possible to file tax returns, using "full-year resident status, for two different states. That is definitely a new one on me!!) FWIW, for calendar year 2013 it is likely a moot point as it will now be impossible for the client to "work" in PA for more than 183 days. That "easy out" would likely not occur if the job scenario continues into later year(s).

Thanks for all input that has been presented on the topic, to include the separate sources provided to me by PMs.

FE

[Bees Knees]

I’m not sure what all the confusion is here. Its seems rather straight forward to me. Either your client will spend 183 or more in PA or not. If your client has a residence in PA (even if it is just renting an apartment for a year or two) and the 183 per year threshold is met, your client is a PA resident. If not, your client is a non-resident.

[FEDUKE404]

Greed in the Commonwealth

I’m not sure what all the confusion is here. Its seems rather straight forward to me. Either your client will spend 183 or more in PA or not. If your client has a residence in PA (even if it is just renting an apartment for a year or two) and the 183 per year threshold is met, your client is a PA resident. If not, your client is a non-resident.

So you are totally ignoring all that BP cited in Section C-1 as well as the C-2 reference to permanent abode ???

"If taxpayer maintains a permanent abode in Pennsylvania --->>>and<<<--- spends a total of 183 or more days of the taxable year in Pennsylvania, even though he or she is not domiciled in the Commonwealth, he or she is considered a resident."

Of course, a callous person (especially of the PA Dept of Revenue type ) could likely read into all of this the fact that ANYONE who spends >30 days of the year in PA automatically becomes (POOF!!) a PA resident.

Go figure....or is it just "show me the money!!" ????

FE

[Bees Knees]

So you are totally ignoring all that BP cited in Section C-1 as well as the C-2 reference to permanent abode ???

A permanent abode means its not temporary. What do you think permanent means? Forever? Have you ever lived in a house or apartment forever?

Obviously somewhere between one day and forever is a permanent abode for PA tax purposes. It doesn’t say how many days (or years) you have to have a residence before it becomes permanent, but other tax laws that define temporary might shed some light on what is meant by permanent.

For federal tax purposes, one year is the cut off for calling something a temporary work assignment for purposes of deducting travel expenses. So could one year also be the cut off between a temporary abode and a permanent abode?

For federal tax purposes, 30 days with no personal services provided is the cut off for calling something a temporary rental under the passive loss rules.

For PA tax purposes, 183 days is the cut off between a resident and non-resident under the physical presence test. So could that also mean staying in the same place for 183 days makes it a permanent abode instead of a temporary abode?

I think you would have a hard time arguing that renting an apartment for 2 years is temporary under any federal or state tax law definition.

[BP.]

For the PA job, an apartment will be rented, or perhaps a home purchased. It is unlikely the job could be deemed "temporary,"

PA defines Permanent Abode - A permanent abode is a house, apartment, dwelling place, or other residence that is maintained as a household for an indefinite period

I am now leaning very strongly toward a non-resident PA

[FEDUKE404]

It's pretty much double-talk

No one is disputing that PA can tax all income earned within the boundaries of the commonwealth.

And, furthermore, the issue being discussed here has no relevancy to the federal definition of "temporary employment." That and associated living/business expenses constitute a totally different tax issue.

But the issue is whether the person can file as a non-resident (pay PA taxes only on PA income) or as a resident (pay PA taxes on all income, to include filing MFJ and perhaps taxing that of spouse who will remain in NC). Client will maintain a "domicile" for himself and his family in NC, and will continue to meet the general requirements for what constitute said NC "domicile." Trips to return to NC home....er, I mean "domicile".... (weekends, weekly, monthly, or whatever) will be at the discretion of the client.

For those (most ??) here who have not yet bothered to read PA REV-611 PO, I still see a conflict between domicile and statutory residency. (You might even want to read through that two-page document.)

(all highlights et al below are my own)

What is a statutory residence?
A statutory residence is the place where an individual spends the most time during the year.

What is a domicile?
A domicile is the place where a person maintains permanent abode and intends to return when absent. A person may only have one domicile at a time.

If a person moves to another state or country, but intends to stay there only for a fixed or limited time (-->>no matter how long<<--), domicile does not change. Domicile is not dependent upon continuous physical presence. It is not abandoned by absence there or by presence in a former domicile, so long as there is not firm, sincere, unconditional intention of remaining in the other jurisdiction for an indefinite and uncertain period.

Individuals who do not maintain domiciles or statutory residences in PA are taxed only on income from sources within PA and cannot qualify for PA credits against taxes paid to other states or countries.

This pretty much looks like it's turning into a PA version of "What is 'is' ?"

Perhaps I am just dense and/or getting senile????

(And I'm about ready just to roll up this topic until tax year 2014, when it might become a relevant issue.)

FE