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In: Accounting

Domicile is a smart way of taxing individuals in my opinion. Especially rich individuals who own...

Domicile is a smart way of taxing individuals in my opinion. Especially rich individuals who own several homes or for people who have international income or work overseas but live in the U.S. As the article makes clear, there are still some boundary issues regarding the classification of domicile and in some areas there is a blurring of the lines. There are many sufficient rules to rule domicile but the IRS should try to fix this and avoid more situations like “Fowler vs North Carolina Department of Revenue”.

QUESTION: DO YOU AGREE WITH THE ABOVE STATEMENT? EXPLAIN

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Expert Solution

Yes, I do agree with the above statement.

Majority of the states in USA define ‘residency’ on the basis of a person’s domicile. As per law domicile is the place which the concerned individual intends to be his/her permanent home.

State tax authorities, when they identify an individual with any gap in their tax fillings, will require that the individual file state income tax returns for the intervening years. This happens when the state believes that the concerned individual has retained their domicile in the state. Another point to be considered here is that states do not allow foreign taxes paid as credits against state income taxes that are due.

In the case of “Fowler vs North Carolina Department of Revenue”, the petitioners had left their North Carolina residence and established their domicile in Florida. They had spent time in North Carolina between the years 2006 and 2007 just for a temporary purpose. As such petitioners were not residents of North Carolina and hence the state cannot subject them to North Carolina’s income tax and gift tax. The state of North Carolina did charge the petitioners with the taxes and if it was not for court’s overruling their position the petitioners would have had to pay the taxes to the state of North Carolina.

ekkarill92 answered 1 year ago
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