Spouse only worked in other state 8 mos, IRS says

[AZ-Tax]

The spouse worked in another state (CA) for 8 mos in 2007. The spouse terminated his job in AZ before leaving for CA where he was employed for 8 mos. When he returned, he found himself another job with a different employer. None of the his employers were related in anyway and it was no different then if he would have changed job 3 times in AZ. His family remained in AZ. Talked to IRS tax law dept this morning and they told me NONE of his expenses can be form 2106 exps. If the IRS is correct, then the only possible deduction would be form 3903 moving exp but the family remained in AZ.

Your thoughts?

[iratax]

Non decuctable

I assume when you say no 2106 expenses you are referring to travel and living expenses.
The IRS is correct. His tax home became Ca as soon as the INTENT was for it to be a non temporary job. The fact that the job did not pan out is not applicable for the tax home.

Now the 3903 is different. There you actually have to work in the new location for 39 weeks in the first 12 months. There are a few exceptions including disability, death or transfer for the benefit of the employer plus a couple other(see Form 3903)

[erchess]

I guess I have smarter clients

because whatever they actually do is what they tell me they intended all along. I just never run into tragic situations like this.

[AZ-Tax]

Ended up being a rather simple solution...

One of those situations where the taxpayer did NOT fully disclose all the details. I had a long talk with AZ - Dept of Revenue person about this and she gave me some pointers on the residency determination and her dealing with CA in these situations in the past. According to her, The taxpayers intent is really what determines the taxpayers residency. In this case the taxpayer rented opposed to purchasing a house in CA. Taxpayer did not change their voter registration info, nor pursue a CA driver license during their stay in CA and lastly, the taxpayer returned still within 2007, back to AZ. This all points to an AZ residence and CA non residence therefore w/filing the CA - Sch S, all CA w/h should be rebated to the taxpayer.

I want thank iratax for your help.

[JON]

Do not think

I agree. Unless there is an agreement between the states-CA income will be taxed in both states (if resident of AZ) and AZ will take a credit for income taxes paid to other states. The question of temporary is a second issue, which includes the residency. If taxpayer was a part year resident of both states then he whould split the income between the two.

[joanmcq]

If it was earned in CA, they owe CA tax regardless of whether the expenses qualify as travel expenses for form 2106. The out of state tax credit will probably not wipe out all of the CA tax since it is unlikely that the AZ tax is lower than the CA tax.

[PIGLEE]

File as full year AZ resident (including CA income). File as non resident or part year credit for CA. On the other state Credit. Arizona does not allow the credit for CA. But CA does alow the other state Credit for AZ. CA taxes are higher than AZ so yes he will end up paying some extra tax to CA, hopefully he had some CA withholding.