Tax Type
Individual Income Tax
Description
Qualified Personal Residence Trust can be an indication of intent to establish domicile
Topic
Domicile
Estates and Trusts
Persons Subject to Tax
Residency
Date Issued
08-29-2008
August 29, 2008
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the "Taxpayers") for the taxable years ended December 31, 2003 through 2005.
FACTS
The Taxpayers, a husband and wife, are United States citizens who began to reside in ***** (Country A) in 1962. As of 1991, they possessed duel citizenship with the United States and Country A. They possess Country A permanent residency cards and vote in Country A elections. In addition, the husband has a Country A driver's license. In 2005, the Taxpayers sold their Country A residence and commenced renting a residence in Country A. The husband worked for a Company located in Country A until late 2004, when he retired.
The Taxpayers owned a residence in ***** (State A), where they resided for a portion of the year for the husband's business purposes. The husband also had a State A driver's license. In June 1999, the wife purchased a residence in Virginia and transferred it to the trustee of a Qualified Personal Residence Trust (QPRT). Upon purchasing the Virginia residence, the Taxpayers surrendered their State A driver's licenses and obtained Virginia driver's licenses. The husband renewed his Virginia deriver's license in June 2004, and the wife renewed her Virginia driver's license in May 2006. The Taxpayers filed 2003 and 2004 Virginia nonresident income tax returns that reported a portion of the husband's salary as Virginia source income.
Upon audit, the auditor determined that the Taxpayers were Virginia domiciliary residents for the taxable years at issue and issued assessments. The Taxpayers appeal the assessments and contend that they never established a Virginia domicile.
DETERMINATION
Assessment Limitation
During the course of the Department's review, a question arose as to the timing of the assessment for the 2003 taxable year. Virginia Code § 58.1-1812 provides that the Department must assess omitted taxes within three years of the later of the due date of the return or the actual date that the return was filed. There is no time limitation on the assessment of individual income tax if no return is filed, a false of fraudulent returns is filed with the intent to evade tax, or the taxpayer fails to report a change in federal taxable income. See Va. Code § 58.1-312.
In the Taxpayers' case, the assessment for the 2003 taxable year was made more than three years after the due date of the return. The Taxpayers timely filed a nonresident Virginia return and there is no evidence of fraud or a change in federal taxable income. As such, the assessment for the 2003 taxable year was not timely made and will be abated.
Domicile
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may actually reside elsewhere. For a person to change domiciliary residency to Virginia, that person must intend to abandon his old domicile with no intention of returning to that same domicile. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.
In determining domicile, consideration maybe given to the individual's expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, sites of real and tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine the person's domicile. A person's true intention must be determined with reference to all of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
Changing domicile is a two-step process. First, a person must intend to permanently move away from one domicile. Second, the person must acquire a new domicile where he intends to remain permanently or indefinitely.
The Taxpayers performed actions that are consistent with establishing a Virginia domicile. The husband obtained a Virginia driver's license and in May 2004, the husband purchased a automobile and registered it in Virginia. The license was renewed in 2006. The wife purchased a home in Virginia and transferred it into a QPRT. The Taxpayers reside in the Virginia residence for a little less than one-half of the year.
Virginia Code § 46.2-323.1 states, "No driver's license . . . shall be issued to any person who is not a Virginia resident." In fact, this section states that every person applying for a driver's license must execute and furnish to the Commissioner of the Department of Motor Vehicles (DMV) a statement that certifies that the applicant is a Virginia resident. While renewing their driver's licenses may have been for purposes of convenience, doing so demonstrates the Taxpayers' intent to be domiciliary residents of Virginia. It should also be noted that a person providing a false statement to DMV is subject to punishment under the laws of the Commonwealth.
The Taxpayers argue that DMV policy requires minimal documentation to establish residency for the purpose of obtaining a driver's license and that no documentation is required to renew one's license. Regardless of the documentation required by DMV, the law clearly states that an individual must be a Virginia resident in order to receive a driver's license in Virginia. Such an action must be given due consideration when determining intent to become a resident of Virginia.
In addition, the wife purchased a home in Virginia and subsequently donated it to a QPRT. Under a QPRT, the settler (in this ease the wife) donates the residence to a trust and reserves the right to live in the residence for a specified period of time at which point the ownership of the residence goes to the beneficiaries of the trust. In this case, the wife has the right to reside in the residence for 15 years or until her death, if sooner. Upon the trust's term ending, the residence is transferred to the Taxpayer's adult daughter. A QPRT is an estate planning devise used to reduce the gift tax upon transferring a residence to family members. Whether a home is owned by an individual or a trust, residing in a permanent place of abode in Virginia for a significant portion of a taxable year can be an indication of intent to establish domicile.
Other actions and activities of the Taxpayers are consistent with maintaining their Country A domicile. The Taxpayers have resided in Country A continuously since 1962. They possess Country A permanent residency cards and vote in Country A elections. The husband also has a Country A driver's license.
The evidence shows that the Taxpayers have maintained strong ties to Country A by continually maintaining permanent residency, keeping a residence, voting, and maintaining a country A driver's license. The maintenance and renewal of a Virginia driver's license is a strong factor to consider in determining domicile, but it is only one factor to consider. Based on preponderance of evidence, the Taxpayers did not surrender their Country A domicile and establish a Virginia domicile for the 2003 through 2005 taxable years.
CONCLUSION
Based on this determination, the assessments for the 2003 through 2005 taxable years will be abated. Please note that should the Taxpayers renew their Virginia driver's licenses again, such action coupled with other facts could be construed by the Department as intent to establish domicile with Virginia for individual income tax purposes.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
AR/1-1590684389.B
Rulings of the Tax Commissioner