Brown & Streza Blog
By David Keligian on 4/9/2018 9:12 AM
Most Californians with higher incomes and homes will probably end up with higher federal income taxes as a result of the new income tax bill. Our federal income tax law now imposes a $10,000 limit on federal deductions for state and local income taxes. For example, any person who owns a home in California with an assessed value of $1,000,000 will be limited in their federal income tax deductions for the California taxes on their home alone—regardless of how much state income tax they pay.

That makes a ballot initiative slated for the November 2018 California ballot especially painful. Named “The College For All Act of 2018”, it is an attempt to re-institute the estate tax in California. Unlike the federal estate tax rules, which were recently liberalized, the proposed California estate tax starts to kick in on estates of more than $3,500,000 at a 12% rate, increasing to a rate of 22% on estates of more than $5,490,000. The initiative, backed by the California Federation of Teachers, establishes priorities...
By David Keligian on 10/26/2017 2:49 PM
Regardless of your party affiliation, expecting Congress to enact rational tax reform is - - at least for individual income taxes - - like asking your dog to parallel park your car. You're foolish if you expect a good result. To paraphrase one observer's comment, you can't expect reform from those who deformed our income tax laws to begin with.

Let's talk about one of the first principles mentioned in the "Unified Framework for Fixing Our Broken Tax Code" (the "Framework"). The Framework is supposed to make the tax code simple, fair, and easy to understand. But fixes such as adding a "zero tax bracket", combining 7 tax brackets into 3, and eliminating most itemized deductions don't simply do anything for most taxpayers.

Most individual tax returns are filed with software that makes the number of brackets, or what itemized deductions are allowed, simple to address. The same point applies to repealing the alternative minimum tax ("AMT"). Again, most tax return software automatically generates AMT...
By David Keligian on 7/12/2016 9:34 AM
In my previous articles on avoiding California residency, we saw that residency questions are ultimately decided by establishing the state with which someone has the "closest connection" during a tax year. It was noted that relying on presumptions and mechanical tests (including the 29 factor test listed in the Corbett case) will not necessarily win the day.

As pointed out in the prior articles, certainly someone who wishes to avoid California residency should align and document as many favorable objective (Corbett) factors as they possibly can. But if the stakes are high (such as leaving California in advance of a major stock sale), an understanding of the practicalities of a Franchise Tax Board ("FTB") challenge is important.

For example, I'm frequently asked "how long do I have to stay out of California after the sale?" The practical answer is "at least 4 years". That is because, assuming a California tax return is filed for the year of the sale, that return may not be selected for audit for...
By David Keligian on 3/24/2014 12:26 PM
My previous California residency articles have discussed how simply applying mechanical factors (such as where your driver’s license is, where you’re registered to vote, and using an out of state mailing address) can still result in you being found a California resident. One overlooked aspect of the California residency test is where one maintains their “domicile”.

Domicile is the place where an individual has his true, fixed, permanent home and principal establishment, and to which place they have, whenever they are absent, the intention of returning. An individual can only have one domicile at a time.

This means that you can be completely absent from California for a certain period of time (say a year), but the Franchise Tax Board can still claim that California was your “domicile” because you always intended to return here. The domicile test is essentially a test of your intent.

Of course, intent is very difficult to prove and can always change. When you consider how aggressive the...
By David Keligian on 12/10/2013 3:36 PM
There are many misconceptions about the rules governing whether someone is taxed as a California resident. This article provides more information as a follow up to my August 20, 2012 article.

BASIC TEST. A very common misconception is that someone can avoid being taxed as a California resident by relying on mechanical tests, such as staying out of California for certain periods of time. This is not necessarily true.

The ultimate test for determining whether or not you are a California resident is whether you have a “closer connection” to California than to any other state during a taxable year. This means it is possible that someone can be taxed as a California resident even if they spend very little time in California during a tax year.

California describes the test as being whether someone is in California “for other than a temporary or transitory purpose”. Someone who visits California for an extended vacation of 3 months and who does not engage in any business activity in California...