SFR for 2011

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    Vicki Thompson

    In 2016, Arizona Department of Revenue (AZDOR) determined client was still a state resident in 2011 after leaving state in 2010. AZDOR determined she owed taxes on all income which consisted only of income form Alaska. Client temporarily went back to Arizona in 2012 to assist mother after father passed. Mother also had some health issues, so taxpayer (only child) extended time to assist with health care. Taxpayer was in Arizona for less than 12 months and worked in a temporary job for about 5 months in 2012 outside her normal employment experience. (Hair stylist couldn’t find work so worked as personal care provider through employer.) Since she worked in Arizona in both 2010 and 2012, AZDOR determined she was still Arizona resident in 2011 and taxed her Alaska income. 2013 through 2018 shows only Alaska income (same for 2019). In 2018, Arizona levied her pay and received $938 toward debt.

    Client did not change her address with AZDOR after moving to Alaska, and since then has moved to several different apartments in Alaska. She did not receive any notifications from AZDOR in 2016 or later that they determined she owed taxes for 2011 nor that they would levy her income beginning in 2018. She left Arizona in 2010, filed Arizona tax returns for 2010 and 2012, and never filed a tax return with them since.

    I spoke with AZDOR audit department who explained that according to Individual Tax Procedure (ITP 92-1) Procedure for Determining Residency Status, taxpayers remained residents until they proved otherwise by certain actions. Unfortunately, she didn’t qualify under the regular methods (owning property, voting, drivers license, vehicle registration) but she was able to gather W-2s from Alaska, apartment rental contracts, professional hairstylists Alaska state licensing, statement from employer with supporting employment documents). I was told by audit department to send letter and documents for review.

    The Audit department sent a reply letter but all it said was that tax year was closed.

    Since an original return was never filed for 2011, could the taxpayer file a NON-resident return to indicate the Alaska earnings are not taxable to Arizona, or is it too late to file the return since it’s in collections? Also, I requested abatement of penalties along with my letter to the audit department, but that wasn’t addressed in the reply letter from the AZDOR. Should I try to pursue that avenue if it’s too late to file an non-resident return?

    Also, at the federal level, if a SFR is filed, is it ever too late to file an original tax return? Or, as in this state case, since the taxpayer is in collections they are too late to file the original return?

    Eric Green

    Vicki, I am not familiar with AZ but can tell you that, usually, once a state makes its determination the taxpayer has a window to file an appeal. Here your client did not receive notice but she also failed to update her address or file a return, so I do not seeing her getting out of it. I would look to see if the AZ DOR has a Doubt-as-to-Liability or Audit Reconsideration process.

    Federally, you can always file a return to correct an SFR if it is still open for collections. If the IRS rejects it you can file a DATL or for Audit reconsideration using the returns as the basis. If it is not in collections because there is no balance due (the IRS got paid by levy or there was an over payment it kept), then usually it is 2 years because after that you can no longer get a refund of the moneys the IRS is holding.

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