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Old 24.03.2010, 06:24
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Californians in CH - proper way of giving up residency in CA?

I have read a few horror stories from Californians that moved abroad and when they moved back several years later the state claimed they where never gone and should pay taxes for those years. I don't know if any of this is really true but considering how the IRS treats expats I would not be surprised. Anyway, I'd be interested to read from CA residents residing in CH how to properly give up residence here. Thing is - I will move to CH approx. 6 months before my wife and therefore still have ties to the state but I want to avoid paying taxes to CA. I am not planning on returning to live in CA but I don't want to burn any bridges, yet.
Thanks.
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Old 24.03.2010, 07:02
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Re: Californians in CH - proper way of giving up residency in CA?

Big caveat - I'm not from CA, and while I know a thing or two about taxes, I'm not a tax attorney.

The US has a worldwide tax system (meaning you pay income taxes on income earned worldwide, subject to a credit for tax payments to foreign jurisdicaitonst). I wouldn't have thought a state would have such a system. However, the following link indicates CA does have a a worldwide system: http://www.ftb.ca.gov/individuals/fileRtn/index.shtml.

So, you have to pay tax on CA source income when not a resident, and on worldwide income when a resident. There are two significant aspects to tax law: the law (statutes, case law, interpretations, sometimes legislative intent. PLRs) and your particular fact pattern. You might be able to nail down the law, but your particular fact pattern may have a significant impact on the outcome. Your wife in CA definately colors the situation.

Probably not what you want to hear, but this may be well worth consulting with a tax attorney, or tax accountant. The $500 you might spend will likely save you quite a bit in the end.

Good luck.
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Old 24.03.2010, 07:26
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Re: Californians in CH - proper way of giving up residency in CA?

I tried to inquire about this myself when I left Philly and it seems to be a very grey area. My suggestion is that you contact a Tax attorney certified in CA and ask for advice. Its what I would do now, if I could go back. It could be especially important since like Philly, you live in a high tax location also.

I say this to you, as I have my own horror story. I am one of those still perceived as domiciled back there. Despite my attempts to send polite letters via the Die Post to explain the situation, I still get those threatening letters (massive fines, warrant for my arrest, we will end your life)... The irony of it is they still send such notices to my old US address, despite me having repeated told them my CH address and contact information. Trying to call is no help either. The front end workers on the phone are usually low paid poorly motivated government workers and it does not fly over well when you tell them you're calling from Swissland! Most of them have probably never even traveled abroad so you quickly detect that sense of jealously via their customer service skills.

I can't emphasise more, that it really is very difficult to deal with.
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Old 24.03.2010, 07:41
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Re: Californians in CH - proper way of giving up residency in CA?

I don't know anything about this but 3 things strike me to prove non-residency.

1. Copy of a work visa for CH
2. Registering with an address here with the US consulate
3. Copy of paperwork asking the US Postal Service to forward mail to a valid address and any other paperwork.

Do you think this would help?

FWIW we have the same with the IRS - still sending mail to the old address despite having told them we no longer live there. The mail kept coming back to them - didn't matter.....they just kept sending it. We just spoke to them about it again last week. In a word....incompetent.
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Old 24.03.2010, 18:40
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Re: Californians in CH - proper way of giving up residency in CA?

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I have read a few horror stories from Californians that moved abroad and when they moved back several years later the state claimed they where never gone and should pay taxes for those years. I don't know if any of this is really true but considering how the IRS treats expats I would not be surprised. Anyway, I'd be interested to read from CA residents residing in CH how to properly give up residence here. Thing is - I will move to CH approx. 6 months before my wife and therefore still have ties to the state but I want to avoid paying taxes to CA. I am not planning on returning to live in CA but I don't want to burn any bridges, yet.
Thanks.
A "horror story" as you describe is virtually impossible without special facts (as to which, read on). California has a "safe harbor" provision. If you are abroad on a contract of employment (need not be a written contract) for 546 days.

Safe harbor is available for certain individuals leaving California under employment-related contracts. The safe harbor provides that an individual domiciled in California who is outside California under an employment-related contract for an uninterrupted period of at least 546 consecutive days will be considered a nonresident unless any of the following is met:
• The individual has intangible income exceeding $200,000 in any taxable year during which the employment-related contract is in effect.
• The principal purpose of the absence from California is to avoid personal income tax.
The spouse/RDP of the individual covered by this safe harbor rule will also be considered a nonresident while accompanying the individual outside California for at least 546 consecutive days.

http://www.ftb.ca.gov/forms/2009/09_1031.pdf

If you are going abroad for reasons other than employment then it would be wise to consider a bona fide change of domicile to another state. New York is nice because (1) California tax authorities work well with their NY counterparts, (2) NY is known as a high-tax state, and (3) NY exempts from tax its domiciliaries persons absent from the state 11 months of the year:

Tax Law Section 605(b)(1)(A) and the related regulations in NYCRR 105.20(b)provide tax relief for certain individuals who are New York State domiciliaries. A domiciliary who meets the criteria of either provision explained below would not be deemed a resident.
␣ THIRTY DAY RULE To qualify under this provision, the taxpayer has to meet the following three
conditions:
1. he maintains no permanent place of abode in New York State during the year; 2. he maintains a permanent place of abode outside New York State during the entire
year; and 3. he spends not more than 30 days of the taxable year in New York State.
Regarding the first condition, the PPA in New York does not have to be maintained for the entire year. Thus, in Matter of Patrick Regan, DTA No. 816588, the ALJ concluded that the taxpayer did not satisfy all three conditions because he maintained an apartment in New York for part of the year.
␣ 548 DAY RULE To qualify under this provision, the taxpayer has to meet the following three
conditions:
1. within any period of 548 consecutive days such person is present in a foreign country or countries for at least 450 days;
2. during such period of 548 consecutive days such person is not present in New York State for more than 90 days and does not maintain a permanent place of abode in New York State at which such person's spouse (unless such spouse is legally separated) or minor children are present for more than 90 days; and
3. during the nonresident portion of the taxable year with or within which such period of 548 consecutive days begins and the nonresident portion of the taxable year with or within which such period of 548 consecutive days ends, such person is present in New York State for a number of days which does not exceed an amount which bears the same ratio to 90 as the number of days contained in such portion of the taxable year bears to 548.

http://www.tax.state.ny.us/pdf/2009/...lines_2009.pdf

Alternatively, you could establish domicile in a state like Florida which has no income tax and which (like Louisiana) will provide you with a certificate of claimed domicile (apply at a county clerk's office). You should then consider establishing other "badges of domicile":
driving license
voting registration
library card
club and church membership
land purchase (you could buy a condo for pennies...)
cemetery plot
family and friends' residence

In either case, file a part-year tax return in each of the states (assuming both levy income tax).

Establishing domicile abroad is more difficult unless you have citizenship of the country where you are living or an indefinite visa. The reason for that is that "domicile" requires (1) presence and (2) intention to remain indefinitely or to return ("animus manendi").

Without more facts I don't want to make further suggestions. But you have a Constitutional right to change your domicile, so even if you are living in Switzerland as a tax exile (a specific exception from the safe harbor rule) you can first establish your domicile in another state or territory. (Dunn v. Blumstein, http://supreme.justia.com/us/405/330/case.html establishes your right to vote without durational minimum).

You are entitled to have a separate domicile from your spouse, but it would be a good idea for her to visit your new state if that is the strategy you decide to use. California law addresses the matter of split domicile where one spouse is in a community property jurisdiction and the other is not. It's discussed in the brochure linked to above. In civil-law jurisdictions your "marital regime" is established at the time of marriage (one presumes that if you were married in California a civil-law country would consider that you have a community-property regime but that's not certain: Swiss and all other European legal systems follow the rule of "immutability" whereas all US states and territories follow "partial mutability" which says that when you change your domicile your marital regime changes too.

If the above confuses you then you need to speak to a tax and an estates and trust lawyer, and also a Swiss notary.

As for estates of Americans and Swiss with a connection to both countries, see http://uniset.ca/misc/swissestates.pdf (This document used to be given out by the Swiss Embassy in Washington but it's been off their Web site for some time and is in some respects obsolete. Still, it's helpful.)
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Old 24.03.2010, 19:37
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Re: Californians in CH - proper way of giving up residency in CA?

And now the short answer: don't go back.

I lived 20 years in California, moved to Switzerland, and never looked back.

Nice place to visit now, but....
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Old 24.03.2010, 20:55
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Re: Californians in CH - proper way of giving up residency in CA?

You know this is quite interesting..Because the less you bother with them, the less problems you have...There are those who have lived outside the country (USA) for years and never bothered to do anything...Went back to the USA and no problem...I am not saying follow this advice...But also remember you are a "human being" not just a number and have rights as a person...period...Don't worry about it...Move, take it easy...Going thru all of this, you will not enjoy being in another country worrying about your former country...Unless you are making millions upon millions no one will know the difference...
Also the people who were outside of the country did not file taxes in the USA and had no problem upon return...Do what you will...but don't stress yourself too much about it...Actually from some of the reading here the IRS doesn't know either how to handle these abroad situations...Don't do their work for them...They won't pick you up in Switzerland and the less you bother with them, the less they bother with you...
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Old 25.03.2010, 00:43
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Re: Californians in CH - proper way of giving up residency in CA?

andy02, thanks for all that info. I actually am a dual citizen (USA/CH). You are saying that helps with relinquishing my residency in CA? From what I have been reading so far I was under the impression that it doesn't make a difference for the the Franchise Tax Board in CA and the IRS if you have another citizenship as long as you have the US one you are treated like an expat. I guess I really shouldn't worry too much about it.
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Old 25.03.2010, 01:38
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Re: Californians in CH - proper way of giving up residency in CA?

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andy02, thanks for all that info. I actually am a dual citizen (USA/CH). You are saying that helps with relinquishing my residency in CA? From what I have been reading so far I was under the impression that it doesn't make a difference for the the Franchise Tax Board in CA and the IRS if you have another citizenship as long as you have the US one you are treated like an expat. I guess I really shouldn't worry too much about it.
I wrote my LLM mémoire on the subject of the law of domicile. Suffice to say, just as for bona fide foreign residence for IRS foreign earned income exclusion purposes, the possession of the nationality of your foreign country of residence is sufficient to support an intention to remain ("animus manendi") indefinitely.

(As my last US domicile was Florida state tax has not been a problem; before that it was New York and the 11-month nonresident provision protected me from state tax. As a matter of convenience I recently exchanged my Florida driving license for a California one (I would have had to go to Florida to renew that one) but I hardly think that California could use that, alone, to attribute domicile to me when I have never lived there. They once tried to pursue me for income tax on the basis that I had an address APO SF - in the days before they changed it to APO AP - and I let them rant on for months before pointing out that my only connection with the state had been to change planes at SFO.)

You can safely file a part-year tax return with California and say that you have returned to a country of your nationality and have severed your connection with the state. Unfortunately California does not accept tax treaty norms so the residence tie-breaker rules don't apply.; but they are still bound by the law of domicile and your right to leave the state. It would avoid arguments (because the computer would not flag your case) if you were to file a part year tax return giving an address in another state instead of a foreign country; but so long as you are going to be abroad and employed for the safe harbor period of 546 days it is a moot point. (Because I am retired the safe harbor rule would not apply to me.)

(As it happens I've been living in London since 1994 but we are about to make Montreux our base. I was born in NY to Swiss parents and, like you, have a Swiss passport. I rang the Montreux population office today just to see what the formality would be for my British wife. There is no advice regarding EU spouses of Swiss citizens either on their Web site or this forum: the answer they gave is that I need to bring the usual registration documents, my ID card, her British passport, 4 photos of her, our marriage certificate (probably redundant since I have to bring our livre de famille also) and a bunch of francs. Also proof of solvency. I told them since I could afford to by a flat in Montreux I must be solvent but they want my pension statement too. I'd give them my AVS statement but I only get 211 francs a month from AVS: chump change.)

Hope that helps. Do not be misled by the principle that when you are in, or dealing with, both countries of your nationality each will consider you solely a citizen of that country. For one thing it's not 100% true. Exceptions are for compulsory military service, dual tax residence, for extradition sometimes, and (arguably) for tax on certain government pensions. And in European law, possession of any EU/EEA/Swiss nationality excludes the right of any of those states to say that your (Swiss) nationality is not "effective" (i.e. to apply the Nottebohm rule; the Micheletti case of the European Court of Justice excluded such a possibility.) Domicile in American law is a particular curiosity; as you know when you get to Switzerland you have to register your domicile whereas in the USA that isn't done, except optionally in Florida and Louisiana.

But I am going off on a tangent. You should rely on the California FTB publication 09_1031, being aware that they use the words "domicile" and "residence" almost interchangeably. Page 3 has the criteria, and these are virtually "badges of domicile". The fact that your family follows later should not govern the outcome; by the time the issue is raised they will have left. Many of the other badges can be finessed. As I have numerous driving licenses (I intend to exchange my old French one for a Swiss one and keep my California, UK and Quebec ones) that will remain the only connection (besides my grandchildren) that I have with the state. You may intend to exchange your California one. (One isn't supposed to possess more than one EU driving license but mine is grandfathered as an exception because it predates the rule and anyway I couldn't exchange it for a UK one because I never took a test for it.)
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Old 25.03.2010, 05:34
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Re: Californians in CH - proper way of giving up residency in CA?

Hi again andy02, thanks for the extensive information and especially for the FTB link. You have put my mind somewhat at ease.
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Old 25.03.2010, 06:45
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Re: Californians in CH - proper way of giving up residency in CA?

I also have duell citizenship (Swiss being one of them)...Its just important not to worry yourself and remember that you are a "human being" first...The world will do quite well without us when we leave it...Try to take care of what you need to without worrying about it ZufiMufi...Good Luck
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