In a personal income tax residency decision that involves a fair amount of schadenfreude, the District of Columbia Court of Appeals affirmed a criminal tax evasion conviction of a District domiciliary and denied a motion to suppress documents obtained through extensive summonses issued by the Office of Tax and Revenue.
For background, the taxpayer filed District tax returns as a part-year resident for the 2009 through 2013 tax years because he spent a substantial amount of time in New Hampshire during those periods. As an alleged part-year District resident, the taxpayer argued that he was allowed to exclude from District taxable income any income he received when he was a part-year resident of New Hampshire (which does not impose a personal income tax).
The trial court explained that a District “resident” incudes a “person who is domiciled in the District or who maintains a place of abode in the District for 183 days out of the year regardless of domicile, and that temporary absence from the District does not change a person’s domicile or place of abode.” The trial court further noted that “a person is domiciled in the District if he lives there and has no intent to return to where he was formerly domiciled, and that to establish a change in domicile a person must show physical presence outside the District, an intent to abandon the domicile in the District, and an intent to remain in the new domicile indefinitely.” As described in the court of appeals opinion, OTR conducted a thorough investigation as to the taxpayer’s District residency status under these rules.
The trial court found that the taxpayer established his District domicile in July 2009 and remained a District domiciliary until after April 2014. The trial court based its findings on the following facts – (i) financial records provided by the taxpayer’s soon-to-be ex-wife “[i]n the midst of an ‘acrimonious’ divorce,” (ii) testimony of a New Hampshire hotel clerk that the taxpayer offered to bribe to use the hotel as his residence address, and (iii) information from 26 summonses to third parties for “bank, investment, residential real estate, employment, school, and other records.” Ultimately, the trial court convicted the taxpayer of tax evasion of the 2011 and 2012 tax years.
The taxpayer argued on appeal that his records were obtained through summons that were improperly obtained, thereby violating the Fourth Amendment to the U.S. Constitution, and that his belief that he was only a part-year resident of the District was reasonable and in good faith. As additional support for his reasonableness and good faith arguments, the taxpayer invoked the venerable “TurboTax” defense, although he admitted “that TurboTax’s designation of his status as a part-year resident was dependent upon the information he entered.”
Following a lengthy discussion of the U.S. Supreme Court’s third-party doctrine as it relates to the summonses and the taxpayer’s reasonable expectation of privacy in the documents sought by them, the court of appeals held that the trial court did not err in holding that OTR “acted in objectively reasonable good-faith in reliance on then-existing law in issuing the summons, and in ruling that the documents need not be suppressed.” The court of appeals held that the trial court’s finding of willfulness mens rea requirement for tax evasion was amply supported by the evidence. Following its review of the detailed record, the court of appeals found there was “overwhelming” proof that the taxpayer was domiciled in the District during the periods at issue and that the taxpayer did not believe in good faith that he was only a part-year resident of the District.