If a nonresident donates valuable objects and volunteers uncompensated time to help build and equip a charitable museum located in New York, can those donations and activities be used as evidence that he is domiciled in New York?

Subject

Whether Mr. X's donation of geological specimens, books, and scientific instruments to a private museum being built in New York, and his New York activities relating to the museum's construction and development, can be used in any manner to determine whether Mr. X is domiciled in New York for personal income tax purposes under Article 22 of the Tax Law.

Plain-English summary

Mr. X has been a Florida domiciliary since 1985. He owns a permanent place of abode in New York but does not spend more than 183 days a year there, so he is a New York nonresident. Mr. X is the grantor and sole beneficiary of the XYZ Trust, a non-New York grantor trust that is tax-exempt under IRC § 671. XYZ Trust is the sole shareholder of ABC, a New York corporation with no employees. ABC bought land in New York in 1991 and has spent substantial sums on taxes, improvements, and architectural fees to build a structure that will ultimately be donated to the DEF Trust - a separate charitable trust that Mr. X formed in 1988, of which he is grantor and one of several trustees, and which is tax-exempt under IRC § 501(c)(3) - to be operated as a private museum.

Once construction is finished, ABC will transfer the building and land to DEF Trust under an agreement between the two. In the meantime, Mr. X will personally serve as DEF Trust's liaison with ABC's construction and design team: meeting with designers, approving plans, choosing materials, and negotiating contracts, all without increasing the time he actually spends in New York. He will also donate valuable geological specimens, books, and scientific instruments from his personal collection to DEF Trust, with an initial batch given now and the rest to follow once the museum obtains state education-department accreditation.

The Department held that none of this counts as evidence of New York domicile. Tax Law § 605(c), added by Chapter 607 of the Laws of 1994 and effective for tax years beginning on or after January 1, 1994, provides that making a financial contribution, gift, bequest, donation, pledge, or loan, or volunteering or donating uncompensated time - or any combination of these - to a recipient that either qualifies as a charitable contribution under IRC § 170(c) or is a "not-for-profit organization" under State Finance Law § 179-q.7 (which includes any § 501(c)(3) corporation), "shall not be used in any manner to determine where an individual is domiciled." The Department noted that the legislative Memorandum in Support of Chapter 607 confirms this intent, and that the statute simply codifies the Department's own longstanding pre-existing policy (see TSB-M-84(17)I) that charitable donations are not considered in domicile determinations.

Because DEF Trust is a § 501(c)(3) tax-exempt organization, it is a "not-for-profit organization" under § 179-q.7, so § 605(c) applies directly: Mr. X's donation of the specimens, books, and instruments, and his uncompensated liaison and construction-oversight work, cannot be considered in determining his domicile. The Department went further, holding that the same protection extends to Mr. X's additional capital contributions to the XYZ Trust (which XYZ Trust in turn contributes to ABC to fund the museum's construction) and to his uncompensated time serving as liaison for both trusts - because under the ABC/DEF Trust agreement, DEF Trust is the ultimate beneficiary of all of these gifts and activities, even though they pass through the intermediate XYZ Trust/ABC structure on the way there. The opinion expressly assumes, without deciding, that Mr. X's ABC-related activities before the XYZ Trust was created did not themselves affect his non-New York domiciliary status.

What this means for you

Nonresident philanthropists funding New York-based charitable projects

If you are domiciled outside New York but want to fund, construct, or personally help build a charitable institution physically located in New York, Tax Law § 605(c) protects you: your donations of money or valuable property, and your uncompensated volunteer time spent overseeing the project, cannot be used as evidence pulling you toward New York domicile - regardless of how much time, money, or personal involvement the project requires - as long as the ultimate recipient is a qualifying charity (a § 170(c) charitable-contribution recipient or a § 501(c)(3) not-for-profit under State Finance Law § 179-q.7).

Accountants and estate planners advising on domicile-preserving structures

This opinion shows the protection is not limited to gifts made directly to the charity. Even when gifts and services are funneled through a layered structure - here, a grantor trust that owns a New York corporation that in turn transfers the finished asset to the charitable trust - the Department will look through the intermediate entities to the ultimate charitable beneficiary and apply § 605(c) to the whole chain. When structuring a client's involvement in a New York charitable project, document the ultimate charitable beneficiary and the agreement establishing that the intermediate entities are conduits, since that is what let the Department extend § 605(c) protection to the contributions and time passing through XYZ Trust and ABC.

Common questions

Q: Does Tax Law § 605(c) mean any charitable gift or volunteer work in New York is automatically ignored for domicile purposes?
A: Only gifts and uncompensated time given to a qualifying recipient - one that is a charitable-contribution recipient under IRC § 170(c), or a "not-for-profit organization" as defined in State Finance Law § 179-q.7 (which covers § 501(c)(3) organizations) - are covered. The statute does not shield activity connected to for-profit ventures or non-qualifying recipients.

Q: Mr. X's gifts and volunteer time technically went to ABC and the XYZ Trust, not directly to the DEF Trust charity. Why did the exclusion still apply?
A: Because the agreement between ABC and DEF Trust made clear that DEF Trust was the ultimate beneficiary of the building, the capital contributions, and Mr. X's liaison work - ABC and XYZ Trust were just intermediate vehicles used to facilitate construction permitting and contracting. The Department treated the substance of who ultimately benefited as controlling, not the form of which entity received the gift first.

Q: Did Mr. X's time spent meeting with designers, approving plans, and negotiating construction contracts in New York count toward the 183-day residency test or otherwise suggest New York domicile?
A: No. Section 605(c) specifically excludes "volunteering, giving or donation of uncompensated time" to a qualifying charitable recipient from domicile analysis, so this liaison work could not be used as domicile evidence. (The opinion also notes these activities did not increase Mr. X's actual time spent in New York.)

Q: Is this a new rule, or did the Department already follow this approach before 1994?
A: The Department describes Tax Law § 605(c) as codifying its own longstanding pre-existing policy, citing TSB-M-84(17)I, under which charitable donations were already not considered in domicile determinations. Chapter 607 of the Laws of 1994 wrote that policy into the statute for tax years beginning on or after January 1, 1994.

Q: Does this opinion decide whether Mr. X was domiciled in New York before the XYZ Trust was created?
A: No. The opinion expressly assumes, without analyzing, that Mr. X's earlier ABC-related activities (before the XYZ Trust existed in 1992) did not themselves affect his non-New York domiciliary status; that earlier period is outside the scope of this ruling.

Q: Would the answer be different if the museum were operated directly by ABC instead of being donated to a separate § 501(c)(3) trust?
A: Very likely, yes. The exclusion in § 605(c) turns on the recipient being a qualifying charitable or not-for-profit organization. ABC itself is an ordinary New York corporation with no independent tax-exempt status; the protection here rested on DEF Trust's status as a § 501(c)(3) organization and on DEF Trust being the ultimate, agreed-upon beneficiary of the property and activity.

Citations and references

• Tax Law § 605(c) - added by Chapter 607 of the Laws of 1994; charitable contributions, gifts, donations, pledges, loans, and uncompensated volunteer time to qualifying recipients cannot be used to determine an individual's domicile
• State Finance Law § 179-q.7 - defines a "not-for-profit organization" to include a corporation with tax-exempt status under IRC § 501(c)(3)
• IRC § 170(c) - defines a "charitable contribution" for purposes of the alternative qualifying-recipient test in Tax Law § 605(c)
• IRC § 501(c)(3) - tax-exempt organization status held by the DEF Trust
• IRC § 671 - grantor trust rules under which the XYZ Trust is tax-exempt
• TSB-M-84(17)I - prior Departmental guidance establishing that charitable donations are not considered in determining domicile, which Tax Law § 605(c) was intended to codify

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a95_2i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-95 (2) I
Income Tax
February 16, 1995

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I941125D

On November 25, 1994, a Petition for Advisory Opinion was received from
Morrison & Foerster, 1290 Avenue of the Americas, New York, New York 10104.
The issue raised by Petitioner, Morrison & Foerster, is whether the fact
of Mr. X's donation of certain geological specimens and related books and
scientific instruments to a private museum, which will be located in New York,
and his activities in New York relating to the construction and development of
that museum, will be used in any manner in the determination of whether Mr. X is
domiciled in New York for purposes of the New York personal income tax under
Article 22 of the Tax Law.
Mr. X has been a Florida domiciliary since 1985. He owns a permanent place
of abode in New York but does not spend more than 183 days in New York during any
taxable year and, therefore, is a nonresident of New York State.
Mr. X is the grantor and the sole beneficiary of the XYZ Trust, a non-New
York grantor trust (based on Mr. X's status as a non-New York domiciliary) formed
in 1992 and which is tax exempt (as a grantor trust) under section 671 of the
Internal Revenue Code. XYZ Trust is the sole shareholder of ABC, a New York
corporation that has no employees and whose activities have primarily consisted
of those described herein.
Substantially all of ABC's capital has been
contributed, either directly or indirectly, by the XYZ Trust.
ABC corporation was formed in 1990, and Mr. A was listed as the sole
shareholder at that time (as nominee for Mr. X).
Subsequently, the stock
certificate identifying Mr. A as sole shareholder was cancelled, and a new
certificate was issued listing Mr. X as the sole shareholder of ABC. Mr. X then
transferred his ABC stock to the XYZ Trust on December 23, 1992, and a new stock
certificate was issued listing the XYZ Trust as the sole shareholder of ABC.
In 1991, ABC purchased a parcel of land in New York for a substantial sum
of money. Additional amounts were also expended by ABC for taxes, improvements,
and architectural fees. The land was purchased and improved for purposes of
constructing a building that will ultimately be given to the DEF Trust as a
private museum. Mr. X is the grantor and one of the trustees of the DEF Trust,
which was formed in 1988 and is tax exempt under section 501(c)(3) of the
Internal Revenue Code.
It is estimated that construction costs for the museum will be substantial,
with additional amounts being spent in completing the interior of the building.
These funds will be given to ABC by the XYZ Trust as additional contributions to
capital.
TP-9 (9/88)

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TSB-A-95 (2) I
Income Tax
February 16, 1995

Once the museum facility has been constructed by ABC, the building and land
will be transferred by ABC to the DEF Trust pursuant to an agreement between ABC
and the DEF Trust (the "Agreement"). ABC, instead of the DEF Trust itself, has
acquired the property and will be constructing the museum, in order to facilitate
obtaining construction permits and negotiating contracts with contractors and
designers. The Agreement provides that after ABC donates the real property to
the DEF Trust, the DEF Trust will operate the facility as a private museum.
The Agreement further provides that Mr. X, on behalf of the DEF Trust, will
serve as a liaison between the DEF Trust and the construction and design team
retained by ABC. It is anticipated that Mr. X's activities will include the
following: meeting with designers, approving plans for the interior and exterior
of the facility, selecting materials for the construction and design of the
facility, and negotiating contracts. These activities will not increase the
amount of time spent by Mr. X in New York.
Mr. X will initially donate geological specimens worth substantial sums,
as well as related books and instruments from his personal collection to the DEF
Trust. Thereafter, the facility will be open for private access by educational
groups. It is also anticipated that New York Regents accreditation will be
sought and that teachers will be hired to conduct classes on topics related to
geological specimens. After such accreditation, Mr. X will donate the remainder
of his personal collection of specimens, books, and scientific instruments.
Section 179-q.7 of the State Finance Law defines a "not-for-profit
organization", in part, as a corporation having tax exempt status under section
501(c)(3) of the Internal Revenue Code.
Section 605(c) of the Tax Law as added by Chapter 607 of the Laws of 1994,
is applicable to contributions, gifts, bequests, donations, pledges, loans,
volunteering, and other activities covered in such Chapter 607, made in taxable
years beginning on or after January 1, 1994. Such section 605(c) of the Tax Law
states:
Notwithstanding any other provision of any other law to the
contrary, the making of a financial contribution, gift, bequest,
donation or any other financial instrument or pledge in any amount
or the donation or loan of any object of any value, or the
volunteering, giving or donation of uncompensated time, or any
combination of the foregoing, considered a charitable contribution
under subsection (c) of section one hundred seventy of the internal
revenue code, or to a not-for-profit organization, as defined in
subdivision seven of section one hundred seventy-nine-q of the state
finance law, shall not be used in any manner to determine where an
individual is domiciled.
The Memorandum in Support of Chapter 607 of the Laws of 1994 provides that
the intent of section 605(c) of the Tax Law is to assure that donations of money,
objects of value or time to a not-for-profit organization may not be used by the
Department of Taxation and Finance in determining resident status. The intent
of such section is consistent with longstanding Departmental policy that
charitable donations are not considered in determining domicile for New York
State personal income tax purposes. (See, TSB-M-84(17)I.)

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TSB-A-95 (2) I
Income Tax
February 16, 1995

Herein, the activities of Mr. X fall under those described in section
605(c) of the Tax Law. Specifically, Mr. X will be donating objects of value,
as well as additional funds, and volunteering his uncompensated time on behalf
of the DEF Trust, which is an organization qualified as a tax exempt organization
under section 501(c)(3) of the Internal Revenue Code. As such, the DEF Trust
constitutes a not-for-profit organization within the meaning of section 179-q.7
of the State Finance Law and, therefore, section 605(c) of the Tax Law. As a
result, these activities may not be considered in making any determination
regarding Mr. X's domicile. Moreover, the contributions of additional funds by
Mr. X to the XYZ Trust and the concomitant contribution of capital by the XYZ
Trust to ABC, as well as Mr. X's donation of uncompensated time on behalf of both
trusts as a liaison with ABC, may not be considered in such context because,
pursuant to the Agreement, the DEF Trust will be the ultimate beneficiary of
these gifts and activities.
Note that for purposes of this opinion, it is assumed that Mr. X's
activities with regard to ABC corporation, prior to the creation of the XYZ
Trust, did not affect his status as a non-New York domiciliary.

DATED: February 16, 1995

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.