nun.. this is a case (state taxation of ex-pats) where the "rules" are opaque to the extent of "unknowable". Since I am clearly not a
resident of any state (nor, in my mind,
domiciled, since I own no property in the US other than what's in my bank and brokerage accounts), I do not file any state tax forms. (I pay my federal income tax from abroad, and have no issues with doing so, either logistically or otherwise, n.b.).
It is clear to me that I owe no state tax, according to this:
For nonresidents only that portion of income attributable to State X sources is subject to the tax.
A resident is a person domiciled in State X or although not domiciled here does maintain a permanent home in State X and is here for a total of more than 183 days of the taxable year.
A nonresident individual is an individual who is not a resident. [ :
]
State X source income for nonresidents is from the following sources:
1. Services performed in State X including amounts received from unemployment compensation, a stock ownership plan or a profit sharing plan that is required to be included in Federal adjusted gross income and is directly connected to current or prior State X employment.
2. A trade, business or profession conducted in the state which shall include the distributive share of income from a State X partnership and the portion of income from a State X estate or trust that is directly derived from a trade or business conducted in this state.
3. Income from real property located in State X which shall include the gain on the sale of such real property.
4. Gambling winnings from the State X Lottery and from pari-mutual events licensed within this state.
Armed Forces service personnel stationed in State X who are domiciliaries of other states are not subject except for income (other than service pay) derived from State X sources. State X domiciliary service personnel are subject on all income even though stationed outside State X and notwithstanding the fact that they may spend no time at all in State X during a taxable year.
A resident estate or trust is the estate of a decedent who, at death, was a resident of this state and, generally, where the beneficiaries are State X residents.
This SEEMS pretty clear. I don't fit the definition of "resident", but the definition of "domicile" is left unanswered here. Elsewhere, investment income (such as from a bank account in State X) is explicitly exempt for
non-residents.
Going to the instructions for State X tax forms:
For purposes of the above definition, domicile is found to be a place an individual regards as his or her permanent home – the place to which he or she intends to return after a period of absence. A domicile, once established, continues until a new fixed and permanent home is acquired. No change of domicile results from moving to a new location if the intention is to remain only for a limited time even if it is for a relatively long duration. For a married couple, normally both individuals have the same domicile. Any person asserting a change in domicile must show:
1. an intent to abandon the former domicile,
2. an intent to acquire a new domicile and
3. actual physical presence in a new domicile.
So the "domicile" to them seems to be a combination of a physical place and imputed current
and future physical presence therein. However, despite the fact that
I never lived in State X after leaving State Y to go to Italy (for convenience, I have a bank account with a State X address, my brokerage statements go to State X, and I have a State X DL based on the bank account), I receive yearly threatening letters from State X about my non-filed tax returns. Each year I respond telling them that I am resident in Italy (with a photocopy of my Italian residency card). Up 'til now I have not used the word "domiciled" but seeing its inherent power, will do so in future.
If one attempts to investigate the grounds for a state 'tax domicile' for people who do not, or never have, physically lived in a state, you'll run into a bunch of items 'taken into consideration' by certain state authorities. The lists look similar to the one here:
http://www.washington.edu/students/reg/residency.html#domicile
Does having nothing more than a voter registration, a bank account and maybe a driver's license = "domicile"? It's unclear. 2 out of 3? Only one of the above? If the address is that of a relative or friend, will it be possible to
prove that you
never "intend" to inhabit that physical place?
I came across one site that seems to be interested in "harmonizing" rules about tax domicile:
The NESTOA states have recognized the need for uniformity in determining domicile issues by its member states. Therefore, the NESTOA states have agreed on the following factors to be considered in determining domicile.
Home or Way of Life
Time
Items “Near & Dear”
Active Business Involvement
Family Connection
(To be reviewed when the first four factors are not conclusive.)
These factors will be used by the states as a guide in determining domicile. In most cases a review of these factors will be sufficient to make a determination. The states have created a model questionaire for their use during audits. Individual state's laws and regulations take precedent on any issue and audit staff will be making decisions in accordance with those laws and regulations.
In some cases the domicile issue may be pursued by more than one state for a particular taxpayer. If two or more states claim a domicile status and if requested by the taxpayer, the North Eastern States involved will discuss the issue and attempt a resolution. However, the states are not bound to accept the resolution. The taxpayer may continue with the appeal process in each of the states.
http://www.nestoa.org/
As described above, someone with just a bank account and a voter registration may well not be "domiciled." Note, however, the last sentence, which shows the intent has gone further than the practice, apparently. There are no rules, only "guides" and you will never get a straight answer, obviously, from state tax authorities. They'll force you to go to court, where domicile will be determined on a case-by-case basis.
For an idea of what State Z looks at to "declare" domicile, take a look here:
http://tinyurl.com/y6hw6m
I include State Z as it may be, of necessity and convenience, a future mailing address for me.
I found this informative document (domicile advice for lawyers):
http://tinyurl.com/w6ta7
.. with this depressing warning; the "burden of proof" seems not on the state(s), but on you.
If your clients have changed domicile, or if they have multiple residences and unclear domicile, their estate will have the heavy burden of proving which state is the actual and proper state of domicile.
The link above cites the case of the founder of Campbell Soup, in which two different states claimed domicile and EACH (NJ and PA) collected $17million from the estate. The Supreme Court has refused to rule on such matters, leaving each state to do their own thing.
BTW, I have briefly talked to "professionals." The answer is, "there is no real answer" until you actually get between that exact rock and that other particular hard place and the court figures it out for you. It's all a matter of interpretation, although taking the advice outlined above in the lawyers' article will certain help many retirees who prefer to be on the move within the US.
In terms of the OP who wants to fund a Roth from Brazil, I can't see any earthly reason why not, as long as he is filing his US federal taxes and is allowed to do so based on his earned income.. As long as he doesn't renounce his citizenship, the IRA regs should work the same regardless of where you physically reside.
Texas Proud is right in suggesting you somehow maintain a US address, which will make things o-so-much-easier. For my Italian DH, when we were originally in Italy I set up (with Schwab) a regular brokerage account for him. The big differences were in that a.) as a non-US-citizen he got hit up for high quarterly fees and b.) they did an automatic 15% witholding. When, after we married, I (easily) combined our assets in a joint Schwab account these annoyances went away. Again, from Italy we file a joint US Federal tax return on these assets and have no problem doing so. If there are "costly mistakes" in the offing, I look to some random state as the culprit, since avoiding US federal tax is not, and has never been, my intent or desire.
Nun, I'm sure your situation as a dual citizen is more complex.. In returning to your "home" country, the US is quite interested in maintaining its revenue stream as far as you're concerned. Renouncing US citizenship is your only way to be definitively "free" of the IRS, and, even in the case that you do so, the IRS will "claim" a 10-year forward window on your income, if they surmise (under what circumstances would they not?) that renouncing citizenship is for tax-avoidance purposes, from what I understand... [Not exactly the "freedom" you thought you were signing up for, eh?]. Apparently, the burden of proof will be on you to prove the contrary, (unfortunately). I guess even if you were to have the extra burden of continuing to file US tax forms, one hopes that the exemptions for (probably higher) UK taxes paid will continue to obviate your US tax burden and you'd be no worse off, outside of the time and expense of filing.
At least that's how I see things so far.... Of course I welcome any corrections, especially those from corners with more than a layman's grasp on legal and tax issues.
