Checklist · Tax

Changing Domicile and Surviving a Residency Audit: A Practical Checklist

26 U.S.C. § 2

Type
Checklist
Jurisdiction
National
Date
2025-01-10
Topic
Tax

A sequenced checklist for changing domicile, surviving a residency audit, and managing multistate nexus. Section A decides whether a change is genuinely available, and Section B sequences the move. Section C builds the contemporaneous record, and Section D closes the statutory residence exposure. Section E covers filing consistency. Section F responds to a residency notice, and Section G assembles the audit file. Section H runs a business nexus review, and Section I handles a remote employee. Section J covers apportionment and sourcing data, and Section K covers credits and double taxation. Section L covers trusts, estates, and expatriates.

Changing Domicile and Surviving a Residency Audit: A Practical Checklist

Tax > Residency, Domicile, and State Tax Nexus | Published 10 January 2025 - Updated 5 April 2026 | UpLaw - uplaw.us

How to use this

Sections A through E are for a person moving. Sections F and G are for a person under examination. Sections H through J are for a business. The single most consequential item is number 5 — a domicile change completed after a liquidity event is worth nothing for that event.

SECTION A — IS A CHANGE GENUINELY AVAILABLE

☐ 1. Understand that domicile continues until a new one is established. There is no gap and no partial change.

☐ 2. Understand that a change requires both physical presence in the new place and intent to remain indefinitely, abandoning the old.

☐ 3. ⚠️ Assess honestly whether the move is real. A change that is paperwork only will not survive examination, and the cost of failure includes tax, interest, penalties, and an open statute of limitations for unfiled years.

☐ 4. Identify what will actually change: the primary home · where the family lives · where work is performed · where the majority of days are spent · where the items of sentimental value are kept.

☐ 5. ⚠️ Fix the timing relative to any income event. A change completed in the year before a business sale, option exercise, or deferred compensation payment is worth many multiples of one completed after.

☐ 6. Determine the old state's statutory residence rule — abode plus day threshold — and whether it will apply regardless of the domicile change.

☐ 7. Identify the old state's audit posture and the amounts at issue, and plan on the assumption an audit will occur.

☐ 8. Compute the tax at stake, so the effort is proportionate.

SECTION B — SEQUENCING THE MOVE

☐ 9. Acquire a home in the new state at least comparable to the one being left.

☐ 10. ⚠️ Dispose of, or materially reduce, the old residence. Retaining a full-time residence in the old state is the single most damaging fact.

☐ 11. Move the items near and dear — photographs, heirlooms, collections, art, pets. Document what moved and when, with photographs.

☐ 12. Move the family, or be prepared to explain persuasively why not.

☐ 13. Spend materially more time in the new state, beginning immediately.

☐ 14. Move business connections — office, professional relationships, board seats where possible.

☐ 15. Change driver's license, vehicle registration, and voter registration, and record the dates.

☐ 16. Change professional licenses and registrations.

☐ 17. Change the physician, dentist, accountant, attorney, and financial adviser, and record first-visit dates.

☐ 18. Change the address on federal returns, bank and brokerage accounts, insurance, passport, and subscriptions.

☐ 19. Update estate planning documents to recite the new domicile and to be executed under the new state's law.

☐ 20. File any declaration of domicile the new state provides.

☐ 21. Resign or convert club memberships tied to the old state.

☐ 22. Move safe deposit box contents.

☐ 23. Do as much as possible in the same year, and document the sequence.

SECTION C — THE CONTEMPORANEOUS RECORD

☐ 24. ⚠️ Begin a day log on day one. Date, location, and a corroborating reference. Ten seconds a day.

☐ 25. Understand that any part of a day usually counts as a day present.

☐ 26. Preserve airline, rail, and rental car records and hotel folios.

☐ 27. Preserve credit and debit card statements showing location.

☐ 28. Preserve toll transponder statements.

☐ 29. Preserve building access, parking, and gym check-in records.

☐ 30. Enable and preserve cell phone location history where available.

☐ 31. Photograph each residence, interior and exterior, and the location of near-and-dear items.

☐ 32. Retain utility bills for each residence showing consumption patterns.

☐ 33. Retain insurance declarations showing which residence is designated primary.

☐ 34. Retain moving company records and inventories.

☐ 35. Retain school enrollment records for children.

☐ 36. Keep the record for at least the assessment period plus a margin.

SECTION D — CLOSING THE STATUTORY RESIDENCE EXPOSURE

☐ 37. Determine whether the old state has a statutory residence rule, and its day threshold.

☐ 38. Determine whether any retained property is a permanent place of abode under that state's definition.

☐ 39. ⚠️ The cleanest solution is to dispose of the abode. Sell, terminate the lease, or convert it to something outside the definition.

☐ 40. If the abode is retained, track days rigorously and understand that a single miscounted day defeats the position.

☐ 41. Consider whether employer-provided lodging falls outside the definition in this state.

☐ 42. Confirm the counting rules — any part of a day, and the narrow travel-through and hospitalization exceptions.

☐ 43. Document any claimed exception with contemporaneous records.

☐ 44. If statutory residence is unavoidable, plan around it using credits and timing rather than contesting it.

SECTION E — FILING CONSISTENCY

☐ 45. File a part-year or nonresident return in the old state for the year of the change.

☐ 46. File a resident return in the new state.

☐ 47. Use the new address on the federal return — 26 U.S.C. § 2, 26 U.S.C. § 63; joint returns at 26 U.S.C. § 6013.

☐ 48. ⚠️ Do not simply stop filing in the old state. An unfiled return leaves the assessment period open indefinitely — compare the federal rule at 26 U.S.C. § 6501.

☐ 49. Confirm the treatment of any retirement income — 4 U.S.C. § 114 limits state taxation of a former resident's pension income; definitions at 4 U.S.C. § 110 and 4 U.S.C. § 124.

☐ 50. Claim the resident credit correctly for income taxed by another state.

☐ 51. Consider whether the principal residence gain exclusion at 26 U.S.C. § 121 applies to the sale of the old home, on its own ownership and use tests.

☐ 52. Confirm consistency in dependent claims — 26 U.S.C. § 152.

☐ 53. Note the state and local tax deduction limitation at 26 U.S.C. § 164 in modeling the after-tax effect.

SECTION F — RESPONDING TO A RESIDENCY NOTICE

☐ 54. ⚠️ Do not respond casually. Early informal statements become the record.

☐ 55. Determine whether the assertion is domicile, statutory residence, or both. They require different responses.

☐ 56. Compute the full exposure — tax, interest, and penalties — before deciding on a posture.

☐ 57. Calendar the response and administrative appeal deadlines. They are short, and administrative appeal generally precedes judicial review.

☐ 58. Assemble the day count from records, not memory (Section G).

☐ 59. Assemble the home, family, business, and near-and-dear evidence.

☐ 60. Identify which facts are unfavorable and address them affirmatively rather than hoping they are missed.

☐ 61. Consider whether another state's determination creates double taxation, and whether Comptroller of the Treasury of Maryland v. Wynne supplies an argument.

☐ 62. Consider whether any federal timing rule is instructive by analogy — notice of deficiency at 26 U.S.C. § 6212, refund claims at 26 U.S.C. § 6511, refund suits at 26 U.S.C. § 7422, timely mailing at 26 U.S.C. § 7502.

☐ 63. See Tax Controversy for Individuals and Administrative Law.

SECTION G — THE AUDIT FILE

☐ 64. Time — day-by-day calendar · airline, rail, and rental records · toll statements · card transactions · phone location history · access logs · passport stamps.

☐ 65. Homes — deeds, leases, closing statements · utility bills · insurance declarations · photographs · property tax bills and any primary-residence exemption · records of sale or conversion.

☐ 66. Near and dear — inventory and photographs of where significant personal property is kept · moving records.

☐ 67. Family — spouse's residence and employment · children's school records · where the family gathers.

☐ 68. Business — employment agreements and assigned office · board memberships and meeting locations · business licenses · where records are kept.

☐ 69. Registrations — license, vehicle, voter, professional, with dates · declaration of domicile.

☐ 70. Professionals — physician, dentist, accountant, attorney, adviser, with first-visit dates.

☐ 71. Affiliations — clubs, organizations, religious congregation, with resident or nonresident status.

☐ 72. Documents — federal returns by year showing address · all state returns · estate planning documents and their recitals · passport address.

☐ 73. Organize by category, index it, and produce it in that order.

SECTION H — BUSINESS NEXUS REVIEW

☐ 74. Build a state-by-state matrix: sales into the state by year · transaction counts · property · payroll · remote employees · inventory locations · in-state activities.

☐ 75. Compare against each state's economic nexus thresholds for sales tax after South Dakota v. Wayfair, Inc., which overruled Quill Corp. v. North Dakota.

☐ 76. ⚠️ Track thresholds monthly. They are measured on rolling or prior-year periods that vary by state.

☐ 77. Compare against factor-presence standards for income tax nexus.

☐ 78. Test whether 15 U.S.C. § 381 protection applies — only for solicitation of orders for tangible personal property against a net income tax; see also 15 U.S.C. § 382, 15 U.S.C. § 383, 15 U.S.C. § 384.

☐ 79. List every in-state activity beyond solicitation: installation, training, repair, credit investigation, collections, inventory, telecommuting employees, in-state applications or cookies.

☐ 80. Confirm the Complete Auto Transit, Inc. v. Brady factors are satisfied where a state asserts tax.

☐ 81. Determine marketplace facilitator treatment for platform sales.

☐ 82. ⚠️ Register before collecting. Collecting without a permit is a separate and worse problem.

☐ 83. Where an obligation was missed, evaluate a voluntary disclosure agreement — available only before the state makes contact.

☐ 84. Set alerts at eighty percent of each threshold.

SECTION I — A REMOTE EMPLOYEE

☐ 85. Determine where the employee actually works, and require employees to report relocations by policy.

☐ 86. Register for income tax withholding in the work state.

☐ 87. Register for unemployment insurance under the localization-of-work analysis, which may point to a different state.

☐ 88. Obtain workers' compensation coverage in that state.

☐ 89. Evaluate corporate income tax nexus created by the employee.

☐ 90. Evaluate sales tax nexus created by the employee.

☐ 91. Register to do business with the secretary of state.

☐ 92. Apply that state's wage and hour, leave, and pay transparency laws — see Remote and Multistate Work.

☐ 93. Determine whether a convenience-of-the-employer rule applies in the employer's state, and if so document employer requirement — a written policy, an assigned office, a business necessity.

☐ 94. Check for a reciprocity agreement between the states.

☐ 95. Confirm classification — an out-of-state contractor is a different analysis, see Worker Classification.

☐ 96. Run a quarterly review of where every employee actually works.

SECTION J — APPORTIONMENT AND SOURCING DATA

☐ 97. Capture sales by destination and by customer location from the beginning. Retrofitting is expensive and imprecise.

☐ 98. Determine each state's apportionment formula — three-factor or single sales factor.

☐ 99. Determine each state's sourcing rule for services and intangibles — market-based or cost-of-performance.

☐ 100. Document the sourcing methodology and apply it consistently across states.

☐ 101. Identify throwback or throwout rules that assign sales back to the origin state.

☐ 102. Evaluate the unitary business question and any combined reporting requirement — Container Corp. of America v. Franchise Tax Board, Mobil Oil Corp. v. Commissioner of Taxes of Vermont, Exxon Corp. v. Department of Revenue of Wisconsin, Allied-Signal, Inc. v. Director, Division of Taxation, and MeadWestvaco Corp. v. Illinois Department of Revenue.

☐ 103. Consider alternative apportionment where the standard formula does not fairly reflect activity.

☐ 104. Reconcile apportionment factors to the financial statements annually.

SECTION K — CREDITS AND DOUBLE TAXATION

☐ 105. Claim the resident credit for tax paid to another state on income sourced there.

☐ 106. Identify where the credit fails: different sourcing rules · dual residency · credit caps at the resident state's rate · taxes the resident state does not recognize · convenience rules.

☐ 107. Evaluate the internal consistency argument under Comptroller of the Treasury of Maryland v. Wynne where double taxation results.

☐ 108. Account for state entity-level taxes adopted in response to 26 U.S.C. § 164 and their credit treatment.

☐ 109. Model the combined effective rate across states before making a residency or structuring decision.

SECTION L — TRUSTS, ESTATES, AND EXPATRIATES

☐ 110. Determine each relevant state's trust residency definition — grantor domicile, trustee location, place of administration, or beneficiary residence.

☐ 111. Apply North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust where a state relies on beneficiary presence alone.

☐ 112. Consider trustee location, situs designation, and place of administration as planning levers — see Trust Administration.

☐ 113. For estates, establish the decedent's domicile at death, and recognize that two states may each assert estate or inheritance tax with no credit mechanism.

☐ 114. Ensure estate planning documents recite domicile and are executed under the intended state's law — see Wills, Trusts, and Probate.

☐ 115. For a move abroad, understand that leaving the country does not end state domicile; a new foreign domicile must be established.

☐ 116. Note that the foreign earned income exclusion at 26 U.S.C. § 911 has no state analogue in most states, and that nonresident alien rules at 26 U.S.C. § 871 and residency definitions at 26 U.S.C. § 7701 address federal status only.

☐ 117. Disclose treaty-based positions where applicable — 26 U.S.C. § 6114 — and see International and Cross-Border Tax.

SECTION M — THE DAY LOG

The single most valuable habit in this field. Ten seconds a day, kept for the assessment period plus a margin.

☐ 118. One row per day: date · state where the night was spent · notes.

☐ 119. Add a corroborating reference wherever one exists — flight number, hotel confirmation, a card transaction, a toll crossing, a meeting.

☐ 120. ⚠️ Record partial days. In most states any part of a day counts as a day present, so a same-day round trip produces a day in each state.

☐ 121. Note travel-through days separately, with evidence that no stop occurred, since the exception is narrow.

☐ 122. Note hospitalization days separately, with documentation, where the state provides an exception.

☐ 123. Reconcile the log monthly against card statements and travel records, while memory is fresh.

☐ 124. Compute a running total for each state, and set an alert well below any threshold.

☐ 125. Keep the log for each person whose residency is at issue, including a spouse.

☐ 126. Store it somewhere that survives a device change, and back it up.

☐ 127. ⚠️ Do not create the log retroactively at audit. A reconstructed calendar in one handwriting, produced for the first time in an audit, carries far less weight than a contemporaneous one — and the auditor will be working from the same third-party records you are.

SECTION N — THE FIVE MOST EXPENSIVE MISTAKES

☐ 128. Changing the paperwork without changing the pattern. Registrations and declarations carry almost no weight. The homes, the time, the family, and the near-and-dear items decide it.

☐ 129. Keeping the old house. Retaining a full-time residence in the old state undermines the domicile change and creates statutory residence exposure independently.

☐ 130. Moving after the income event. The tax on a business sale is determined by residency in the year of the sale.

☐ 131. Simply stopping filing. An unfiled return leaves the assessment period open indefinitely, converting a three-year exposure into an unlimited one.

☐ 132. Assuming no office means no nexus. South Dakota v. Wayfair, Inc. ended physical presence for sales tax, factor-presence standards extend the principle to income tax in many states, and 15 U.S.C. § 381 protects far less than businesses assume.

SECTION O — QUICK REFERENCE

☐ 133. Domicile and statutory residence are independent. Either makes you a resident. ☐ 134. Residents are taxed on worldwide income; nonresidents only on sourced income. ☐ 135. Domicile continues until a new one is established. ☐ 136. Statutory residence = maintained abode + days. Dispose of the abode to close it. ☐ 137. Any part of a day usually counts. ☐ 138. The taxpayer bears the practical burden, because the taxpayer holds the evidence. ☐ 139. Timing relative to the income event is the highest-value decision. ☐ 140. Complete Auto Transit, Inc. v. Brady supplies the four-part constitutional test; Comptroller of the Treasury of Maryland v. Wynne the credit requirement. ☐ 141. South Dakota v. Wayfair, Inc. replaced physical presence with economic nexus. ☐ 142. A single remote employee can create six state registrations. ☐ 143. Voluntary disclosure is available only before contact. ☐ 144. Track days and thresholds contemporaneously. Everything else in this checklist is downstream of that.

SECTION P — THE TWELVE-MONTH TIMELINE

For a person planning a domicile change, the work distributes across a year in a predictable way.

Months minus three to zero — before the move ☐ 145. Confirm the move is genuine and model the tax at stake. ☐ 146. Confirm the timing relative to any anticipated income event. ☐ 147. Identify what will happen to the old residence, and commit to it. ☐ 148. Identify where the family will be.

Month one ☐ 149. Begin the day log. ☐ 150. Close on or lease the new residence; photograph it. ☐ 151. Move the near-and-dear items and photograph them in place. ☐ 152. Change driver's license, vehicle, and voter registration; record dates.

Months two and three ☐ 153. Change physician, dentist, accountant, attorney, and adviser; record first-visit dates. ☐ 154. Change addresses on accounts, insurance, passport, and subscriptions. ☐ 155. File any declaration of domicile. ☐ 156. List, sell, or convert the old residence.

Months four through six ☐ 157. Update estate planning documents to recite the new domicile. ☐ 158. Move or convert club and organization memberships. ☐ 159. Move safe deposit box contents. ☐ 160. Confirm the day count is trending materially toward the new state.

Months seven through twelve ☐ 161. Maintain the log and reconcile monthly. ☐ 162. Confirm no statutory residence exposure remains in the old state. ☐ 163. Assemble the year's documentation into the audit file structure in Section G.

At filing ☐ 164. File consistently everywhere — part-year or nonresident in the old state, resident in the new, federal with the new address. ☐ 165. ⚠️ Continue the log for at least the assessment period. The audit, if it comes, will arrive two to three years later.

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