In-Laws Cost Taxpayer More Than $900,000 in New York Taxes, Penalties and Interest!

State and Local Tax

By Cathleen Condrac

All John Barker and his wife, Laura, wanted was a summer house in New York near the beach as a change of scenery from their Connecticut home. With three young children, they ultimately purchased a small house in Napeague, New York for $260,000 in April 1997.

According to the State of New York Tax Appeals Tribunal (“Tribunal”), Mrs. Barker’s parents, Leonard and Fran Giarraputo, had brought the property to the attention of the Barkers, who understood that the Giarraputos would also be using the property. During 2002 through 2004, the Giarraputos utilized the house several days a week during the summer months and on many weekends from November to May. Mr. Giarraputo even operated a small-scale fishing charter business, which listed this house as its address. The Giarraputos maintained a post office box in the area and sometimes arranged for repairs and improvements to the dwelling on behalf of the Barkers. In order to avoid scheduling conflicts with the Giarraputos, the Barkers generally called before coming to stay.

The issue at hand was whether or not the Barkers were New York State residents during the disputed years. In the state of New York, a “resident” is defined as an individual who maintained a permanent place of abode in the state and spent in the aggregate more than 183 days in the state during the tax year.

Before the Tribunal, the Barkers argued that they only used the home for short summer vacations and not as a permanent home, since it was not suitable for such use. The Barkers stated that the living quarters were cramped and lacked privacy with the Giarraputos’ frequent presence in the house, since the open layout of the house and its lack of interior insulation permitted sound to travel easily throughout the 1,122-square-foot house. Also, the Barkers lamented it was not convenient to frequently travel 138 miles from Connecticut to the house with three small children. However, the Barkers acknowledged their ultimate dominion and control over the use of the property, even though they chose to allow the Giarraputos liberal use of the premises.

In the end, the Tribunal found the Barkers met the two-prong test to qualify as New York State residents. First, Mr. Barker conceded that he spent more than 183 days within New York State through his job in Manhattan. Second, thanks to the Giarraputos’ credit card statements, utility and telephone bills, cable bills, and oil delivery charges occurring over the winter months, the Tribunal agreed with the Administrative Law Judge’s decision that the Barker’s dwelling place in Napeague was, in fact, utilized year-round and fell within the definition of a permanent place of abode, which is a “dwelling place permanently maintained by the taxpayer…”

The case was remanded to the Administrative Law Judge to determine whether the Barkers had established reasonable cause for abatement of penalties. In a rare decision, the Judge ultimately imposed penalties.

Lesson to be learned – Don’t tell your in-laws about your New York summer home!

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