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Tax Law Update: February 2023

David A. Handler and Alison E. Lothes highlight the most important tax law developments of the past month.

• Nebraska Supreme Court rejects change of domicile claim—In Acklie v. Nebraska Department of Revenue, 313 Neb. 28 (Dec. 9, 2022), the Nebraska Supreme Court held that the owners of Crete Carrier Corp., a major U.S. trucking company, failed to abandon their domicile in Nebraska for a permanent residence in Florida.

In 2008, Duane and Phyllis Acklie took a number of actions to demonstrate a change of residence from Nebraska to Florida. Among other things, they obtained Florida driver’s licenses, registered to vote there, became members of various organizations and were approved to obtain a homestead exemption for their Florida residence. But the Acklies also retained connections to Nebraska, where they maintained a golf club membership, kept vehicles registered in the state and made large political contributions. In 2010, Duane executed a will in Nebraska. In 2013, Duane executed in Florida a codicil to his will, revoking and deleting all references to Nebraska and its laws and substituting Florida and its laws instead.

The Acklies challenged the Nebraska Department of Revenue’s determination that they were residents of Nebraska from 2010 through 2014. For Nebraska income tax purposes, a “resident individual” is an individual who’s domiciled in Nebraska or who maintains a permanent place of abode and spends more than six months per year in the state. To change domicile, Nebraska law requires both an intent to abandon the previous state and an intent to remain indefinitely in the new state.   

The Acklies argued that they changed their domicile to Florida in 2008, emphasizing in particular their registration as Florida voters and sworn statements of residency. The court disagreed, citing the need to consider all surrounding circumstances and relaying a presumption in favor of the original state of domicile. The court upheld the district court’s findings that the Acklies spent
more time in Nebraska than in Florida each year. More important, however, was the fact that the Acklies used their Lincoln, Neb. residence as a “home base” in their travels, it being the place they departed from and returned to most frequently.

• Tax Court holds that employer’s write-off was taxable income not a gift—In Fields v. Commissioner, T.C. Summ. Op. 2022-22 (Nov. 10, 2022), the Tax Court held that an employer’s write-off of $79,581 of prior advances constituted taxable income to the taxpayer, rather than a non-taxable gift, despite the taxpayer’s personal relationship with her employer.

Over the course of the employment, the taxpayer had a demonstrated personal relationship with the company’s chief executive officer. When the taxpayer separated from the company, she and her employer executed a severance agreement that provided for the write-off of employee advances in the amount of $79,581.

The taxpayer claimed that this write-off was a tax-free gift resulting from her personal relationship with her employer. The Tax Court disagreed, noting that a gift must proceed from a detached and disinterested generosity, motivated by affection, respect, admiration, charity or the like. The court further noted the strong presumption that payments made beyond an employee’s salary are compensation for services and not gifts. While the taxpayer did supply evidence of a personal relationship with her employer, the Tax Court held it was insufficient to support her contention that the loan forgiveness constituted a gift, especially because the amount was included in a signed severance agreement and reported on a 1099-MISC.

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