CA filing/tax question - Help

[artp]

Client has for many years maintained his tax home in IL with his wife and children--house, registered to vote, driver's license, car in license, etc..

In 2018 he contracted with a medical staffing company from CA that contracts thru UCSF for client to work as a medical staffing professional in a hospital in Liberia from Jan 11-Jun 10, 2018. His income $58,000 was reported on W-2 from UCSF with CA withholding and using his IL address for reporting purposes. His wife and children lived in IL Jan 2018-June 2018 until they moved to rented housing in CA in Jul and the children attended school in CA from Aug-Dec. From June 29-Dec 31 the husband worked as an independent medical services contractor for Echo Locum Tenens for work in CA with earnings of $78,000 reported on 1099-MISC box 7 still using his IL address for reporting purposes.  In early Jan 2019 the entire family moved to Liberia for husband to fulfill his contractual obligation to work there until June 30, 2019. Presumedly, this will also be reported on a W-2 with CA withholding.

 

They are undecided where he will work or where they will live after June of this year.

Given the above facts, how should he report his income for state purposes?  PY CA PY IL? Ignore the fact that the wife and kids lived in IL for part of year and report everything as CA source and a full year resident?  I understand that CA is very aggressive to treat anyone who has a connection with CA as a resident for state tax reporting.  Is there a significant difference in CA treatment for full year resident vs PY?  I really need some CA expert advice on this one! Thanks

[Lion EA]

https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents-Part-Year-Residents.shtml and CA's publications in the 1XXX series

[Max W]

All the income is California source income.  It doesn't matter where he lived.  So, he might as just well jile a regular 540 return.   UNLESS, he hs tofile an IL return as well.  Then he files a 540NR (non-resident).  To avoid double taxation, the tax paid to IL gets credited on form S of the CA return.    With a family of four andn $58K income he should not owe any tax.

[BulldogTom]

I think Max missed the part of the post where the tp 78K made as an independent contractor after he got back from overseas.

Looks to me like he was not working in CA for the first half of the year.   His family and home were in IL and he was working outside the US.   That income should be excluded from his PY return.   Problem is, his employer coded those wages to CA, and of course CA is going to believe them, not the taxpayer.  Does he want to be taxed in IL or CA on that income?  Does he want to fight the FTB over that income, and does IL even know about that income.   You have choices to make.

After June, there is no question that the 78K is CA source income.   He lived and worked here.  But is he a non-resident on temporary assignment in the state or is he domiciled in CA?  2019 is now tricky and has bearing on 2018.   Do they still own the home in IL?   Where do they plan to vote?   What state is their drivers license from?   All of this will determine domicile for 2018 and 2019.   You have to get the client to answer the question of where the are going after his assignment is up.

Tom
Modesto, CA

[Lion EA]

And, not only where he resided/resides, but also where his tax home was for each of his occupations. Did his tax home change to CA when he took a job from the CA company that sent him overseas? Was his intent to land in CA when returning from overseas? Is his intent to return to IL? Has it been less than a year?

And, if the wife made any money, then the date her domicile changed, or not, matters. A lot of questions.

Draw out a time-line for tax home and draw out a time-line for domicile/residency.

[artp]

Thanks for all of the feedback.  I have requested a complete time line for all of the family from 2017-forward as well as taxpayer's plan for working and living going forward.  He still does maintain his IL home, has IL driver's license and car is still licensed there. Have more digging to do. If he could give me a clear intention of moving back to CA when he returns to the US and selling his house in IL, I would be inclined to do a PY IL for Jan-Jun and PY CA from Jul-Dec. The remaining sticky issue would be income on  the CA W-2. It really should not be considered CA taxable (being earned while his is an IL resident), but with the employer withholding CA taxes, I could see both states taxing the same income, but my client getting at best a partial state income tax credit to ease the blow.  The real tax bite is the SE tax on the $78,000 and no estimated taxes paid during the year. Ouch!

[BulldogTom]

I think you are on the right track in your analysis. 

Get your POA for CA and get registered at MyFTB so that you can represent them.   CA will run a match on the W2's at some point and send a letter demanding payment.   You will need to respond right away.   CA is very aggressive with collections, especially when they think someone left the state with a tax bill due.   

Make sure you use an address for the tax return that the client will receive the mail.   You want to get the notice and respond right away.   Otherwise you will be trying to get the money back from the FTB after they levy.

FYI - this is probably too much information, but California FTB has a bank reporting system called FIRE.   All the banks doing business in CA have to report the SSN, account number and Balance of all account holders at the bank every month or so.   If the state has an outstanding balance on the client's account, they will levy if they don't hear back when they send a notice.   

[artp]

Thanks for the heads-up Bulldog Tom. I am especially concerned since client is now planning to go back to CA when they return to the US in June and selling the house in IL. They have just signed a 9 month (July 2019-March 2020) lease on a place in CA. May need to bite the bullet and report all of the CA W-2 wages to CA as a PY CA, PY IL resident and try to get a partial tax credit on IL. Any further thoughts?

[Max W]

As Tom suggests, it would be wise to file a CA POA.  You will need one for each spouse.  Be sure that the signature is handwritten.  If it is any kind of electronic sig, it will be rejected.  You won't get letters from the FTB, but they will notify you by email that a letter was sent to the client.  You can then access it on line.  

 

[BulldogTom]

4 hours ago, artp said:

Thanks for the heads-up Bulldog Tom. I am especially concerned since client is now planning to go back to CA when they return to the US in June and selling the house in IL. They have just signed a 9 month (July 2019-March 2020) lease on a place in CA. May need to bite the bullet and report all of the CA W-2 wages to CA as a PY CA, PY IL resident and try to get a partial tax credit on IL. Any further thoughts?

You could make the argument that he was a full year CA resident, if his wife had no income.   Report it all on CA and nothing to IL.   Not sure how IL will react, that is not a state I am familiar with.   You would know the answer better than I would.   It would make your life easier to put it all in one state.   And then IL would have to make the case that a person who moved to CA, worked for a company in CA, and moved his family after the school year ended was domiciled in IL.  

If you do decide to file the IL return and you pay taxes in that state, add a Sch S - Other State Tax Credit to your CA 540 return for credit for taxes paid to another state.  But file as a full year resident on CA and a PY resident on the IL.   

I think, if this was my client, I might try that route.   But again, I am not an expert in IL domicile, so take this advice with a grain (or full shaker) of salt.

Tom
Modesto, CA

[artp]

Bulldog Tom

I thought about filing as a full year CA resident but he does not have a valid CA address so I thought about using C/O address for his parents who live near me since he gets his mail forwarded there anyway while he is overseas that way the Peoria address would not appear anywhere on the returns.  The Sch C would look a little odd with the C/O address in IL and the income being reported in CA.

This is just a very crazy situation.

AND....

Full shaker of salt, yes, but preferably salt on the rim of a margaretta...a very large one!

Thanks for the suggestions and advice..

 

[BulldogTom]

Not a problem.   I may need IL help one day.

Let me know how you finally handle it if you don't mind.  

Tom
Modesto, CA