Discussion:Calif Non-Resident Safe Harbor

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Discussion Forum Index --> Advanced Tax Questions --> Calif Non-Resident Safe Harbor

Discussion Forum Index --> Tax Questions --> Calif Non-Resident Safe Harbor

Taxinca (talk|edits) said:

24 May 2011
My client left Calif in Aug 2010 under a > 546 day employment related contract and has not returned. Question: Can he be considered a PY resident in 2010 under the safe harbor?

My confusion is that FTB Pub 1031 and ยง17041(d) say "return" visits up to 45 days in a tax year are allowed under the safe harbor. He left in Aug and didn't return.

However, the 540NR instructions say if he is present in CA more than 45 days in 2010, he doesn't qualify for the safe harbor. He was present before he left (ie, Jan- July).

As a follow up question, is any election or statement required on the return to claim the safe harbor?

KatieJ (talk|edits) said:

27 May 2011
Yes, your client is a part-year resident for the first year, assuming he actually turns out to meet the safe harbor rules in the long run. There is always the risk that unforeseen events may bring him back to California early, in which case he would have to rely on the general facts-and-circumstances rules. However, I certainly would file him as a PY resident in 2010. While the statutory language is not entirely clear, the FTB so far has interpreted the rule to mean "returns" after the absence, so as not to count days before the taxpayer left the state in the 45-day rule. As you've seen, the 540NR instructions are a little ambiguous -- they say you do not qualify if you are present for more than 45 days "during any taxable year covered by the contract." Only a part of 2010 was "covered by the contract" -- therefore I believe that instruction can be read to mean days AFTER commencement of the contract. In any event, it's only a form instruction, which in California does not have the force of a regulation (as it would in Illinois, for example).

We don't have a lot of case law (the SBE doesn't issue opinions any more except in very unusual cases, alas) or administrative guidance on Sec 17014(d), but so far the FTB seems to interpret it broadly.

No election or statement on the return is required.

Taxinca (talk|edits) said:

27 May 2011
Thank you so much for your response. As always, I really appreciate your help.

Taxinca (talk|edits) said:

27 May 2011
As a follow point, I didn't realize that some states considered form instructions to have the force of regulation. I don't prepare a lot of state returns (other than Calif) but it's something else to watch out for.

Thanks again.

KatieJ (talk|edits) said:

30 May 2011
Illinois is the only state I've run across that gives form instructions the force of regulations. That doesn't mean there aren't others, it's just the only one I know of.

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