The Records an Auditor Asks For

Residency disputes are not won by explaining where somebody lives. They are won by producing a record of where that person was, day by day, over a year that ended some time ago. The taxpayer who kept one is in a straightforward position; the taxpayer who did not is arguing from inference.

The day log

A record of location for every day. Which state the person was in, with arrival and departure times where a line was crossed.

Kept during the year. Contemporaneous entries carry weight that a reconstructed schedule does not.

Covering the whole period. Because gaps are resolved against the taxpayer, as explained in statutory residency and how days are counted.

Simple in format. A calendar entry or an app; sophistication adds nothing and complexity discourages use.

And corroborated by other records. The log frames the case and the underlying documents support it.

The corroborating records

Travel documentation. Airline bookings, boarding passes, rail tickets, rental agreements and fuel receipts showing movement between states.

Card transactions. Credit and debit statements locate a person on most days without any effort to create the evidence.

Toll and transit records. Electronic toll accounts and transit cards produce timestamped crossings, which are particularly useful at state lines.

Mobile phone data. Location history and call records, generated automatically and among the most complete sources available.

And appointment records. Medical, dental and professional appointments place a person at a specific location on a specific day.

The property records

Utility consumption at each home. Electricity, water and gas usage show which property was occupied and when, in a way that is difficult to arrange.

Building access and alarm logs. Entry records and system arming histories for each property.

Service and delivery records. Cleaning, landscaping, maintenance visits and deliveries, all of which imply occupancy patterns.

Lease or rental documentation. Particularly where a property was let to an unrelated tenant, which can remove it as a place of abode.

And insurance and registration addresses. Which support the wider domicile picture examined in what a domicile audit examines.

The records about a life

Employment calendars. Meetings, office attendance and travel, which locate a person on most working days.

Family circumstances. Where a spouse lives, where children attend school, and where dependants are cared for.

Memberships and affiliations. Clubs, places of worship, professional bodies and community organizations, with attendance where recorded.

Correspondence addresses. Where mail was actually received, across accounts, subscriptions and official communications.

And moving documentation. Contracts, invoices, utility connections and change-of-address filings, which fix the date of a relocation.

Assembling and keeping them

Start on day one of the relevant year. Since the point of the exercise is contemporaneity.

Retain data that providers purge. Location history, toll records and card statements are not kept indefinitely by the institutions holding them.

Keep it in one place. A folder per tax year containing the log and the supporting material, closed at year end.

Hold it for the full look-back period. Which is longer than most people assume and varies by state.

And produce it in an organized form. A clear chronology with documents indexed to it is answered differently from a box of receipts.

The reason this is worth doing prospectively is that the examination arrives long after the year it concerns. By the time a questionnaire is received, the card statements may have been discarded, the phone data purged, the toll account closed and the memory of a particular week entirely gone. Nothing about the underlying facts has changed; only the ability to prove them.

It is also worth being clear about who this applies to. Anyone with a home in two states, anyone who has moved from a state with an income tax, and anyone whose income is substantial enough for a state to take an interest should assume that a year may be examined. That is a wider group than it sounds, and it includes many people who have never thought of themselves as having a tax position worth defending.

The effort involved is genuinely small relative to the stakes. A day log takes a minute a day. Retaining statements and travel documents takes a folder. Ensuring phone location history is being kept takes one setting. Against that, a residency assessment on a year of worldwide income is among the larger liabilities an individual can face, and it is decided almost entirely on whether these records exist.

The last point is about attitude. Producing organized records early in an examination tends to shorten it, because it answers the questions the auditor was going to ask and demonstrates that the position was taken deliberately rather than assumed. Producing them late, incompletely, or after several rounds of requests has the opposite effect, and it invites scrutiny of matters that would otherwise have been accepted.

A word about what these records are being used to prove, since the two inquiries run together and call for slightly different material. The day count is arithmetic: it needs location evidence for every day, and nothing else. The domicile question is about where a life is centered, and it needs the property, family and affiliation records as much as the movement ones. A taxpayer producing an immaculate day log and nothing else has answered one question well and left the other open, which is examined in what a domicile audit examines and connects to the exposure described in being a resident of two states at once.

Privacy is a reasonable concern and it deserves a straight answer. These requests are intrusive: a state asking for a year of card statements, phone location history and building entry logs is asking for a detailed picture of somebody's private life. The material can generally be provided in summary form, with underlying detail supplied where a particular period is in dispute, and a taxpayer is entitled to ask that requests be tied to specific issues rather than open-ended. What is not a viable strategy is declining to provide evidence at all, since the burden sits with the taxpayer and unproven days are treated as days in the state.

The efficient posture, then, is to keep more than will be needed, organize it as the year goes along, and produce a clear subset when asked. That approach costs almost nothing during the year, keeps the disclosure proportionate when an examination comes, and puts the taxpayer in the position of answering questions rather than of being unable to. That is the entire strategy, and there is no substitute for it that can be adopted once an examination has already begun. The records either exist or they do not, and that question is settled during the year in dispute rather than during the argument about it.