The California Office of Tax Appeals (OTA) recently released an opinion in In the Matter of the Consolidated Appeals of R. Peters, OTA Case No. 22019564, which provides a valuable analysis of California’s residency and domicile rules. This case is an important read for tax professionals advising high-net-worth individuals with connections to multiple states, especially when one of those states is California. The taxpayer, an entertainer with significant ties to both Nevada and California, challenged the Franchise Tax Board’s (FTB) determination that he was a California resident for the 2012, 2013, and 2014 tax years, which resulted in proposed additional taxes exceeding $2.1 million plus interest.

Factual Background

The taxpayer, R. Peters, is an entertainer born and raised in Canada who performs worldwide. During the years in question, he had extensive personal and financial connections to California, Nevada, and Canada.

Property Ownership: Mr. Peters owned multiple residences. In Nevada, he owned a 4,052 square-foot home in Henderson purchased in 2007 and a two-bedroom condominium in Las Vegas purchased in 2011. In California, his holdings were more substantial. He owned a 5,857 square-foot home in Studio City (purchased in 2009), which he leased to a third party beginning in May 2014. In July 2012, he purchased a 3,974 square-foot home in Woodland Hills for his former wife and daughter to reside in as part of a legal separation agreement. In April 2014, his LLC, New Freedom, purchased an 8,633 square-foot residence in Malibu for approximately $4.95 million.

Business and Personal Ties: Mr. Peters held a Nevada driver’s license listing his Henderson residence. He was the sole shareholder or member of three Nevada-registered entities: Just the Tip Inc., Back to Business LLC, and New Freedom, LLC. However, these entities listed a Canadian address on official documents, including the deed for the Malibu property.

The taxpayer’s family connections were centered in California. He married in Nevada in 2010, and his daughter was born in Los Angeles later that year. He and his wife separated in 2011, filing for legal separation in Los Angeles County Superior Court. The separation agreement stipulated that their daughter’s residence could not be moved from Los Angeles County without court order or mutual consent. The taxpayer’s former wife and daughter resided in the Woodland Hills home he purchased for them. He also filed for divorce in the same California court in 2014.

Physical Presence: The FTB conducted an audit and used records from a personal credit card for which Mr. Peters was the sole authorized user to determine his physical presence in California and Nevada. According to the FTB’s analysis, his days present were:

2012: 113 days in California, 21 days in Nevada.
2013: 144 days in California, 13 days in Nevada.
2014: 120 days in California, 9 days in Nevada.

For all three years, Mr. Peters and his former wife filed California Nonresident or Part-Year Resident Income Tax Returns (Form 540NR), listing a Canadian address.

Taxpayer’s Request for Relief and Court’s Analysis

The taxpayer appealed the FTB’s determination on two primary issues: whether he was a California resident during the tax years in question and whether he was entitled to an abatement of additional interest.

Residency Determination

The OTA began its analysis by noting that the FTB’s residency determinations are presumptively correct, and the taxpayer bears the burden of proving error by a preponderance of the evidence (Cal. Code Regs., tit. 18, § 30219). Under California Revenue & Taxation Code (R&TC) § 17014(a), a “resident” includes any individual domiciled in California who is outside the state for a temporary or transitory purpose. This established a two-part test for the court: determining domicile and then determining residency.

Domicile Analysis Domicile is defined as the one location where an individual has their most settled and permanent connection and the place to which they intend to return when absent (Cal. Code Regs., tit. 18, § 17014(c)). A domicile, once established, is presumed to continue until a change is proven (Appeal of Bracamonte, 2021-OTA-156P).

The FTB argued Mr. Peters was domiciled in California based on his familial abode and physical presence. The taxpayer countered that his domicile remained in Nevada, citing his Nevada driver’s license, Nevada business entities, and his assertion that the Henderson property was his primary residence. He also contested the FTB’s use of credit card data to establish physical presence, claiming his staff sometimes used his cards.

The court found two factors weighed heavily in favor of a California domicile:

Familial Abode: The court determined that the taxpayer established a marital and familial abode in California at the Studio City residence in 2010. After the separation, his former wife and daughter continued to reside in California at the Woodland Hills property, and he purchased the nearby Malibu residence for his own use. The court noted that the maintenance of a marital abode is a significant factor in determining domicile (Appeal of Mazer, 2020-OTA-263P) and that Mr. Peters returned to this abode whenever his extensive travel schedule allowed.
Physical Presence: The court gave significant weight to the FTB’s day-count analysis. Mr. Peters failed to provide credible evidence to rebut the FTB’s reconstruction of his physical presence, and the court dismissed his "unsupported assertions" that his staff used the credit card. The data showed he consistently spent far more time in California than in Nevada and regularly departed from and returned to California for business. This pattern indicated California was the place to which he intended to return when absent (Appeal of Bracamonte, supra).

While acknowledging his Nevada driver’s license and business registrations, the OTA concluded that, on balance, the taxpayer’s familial abode and physical presence more strongly indicated that his most settled and permanent connection was in California. The OTA thus found him domiciled in California for the years at issue.

Residency Analysis Having established California domicile, the court next considered whether the taxpayer’s absences from the state were for "temporary or transitory" purposes (R&TC, § 17014(a)(2)). In cases with significant contacts in multiple states, the state with the "closest connections" is the state of residence (Cal. Code Regs., tit. 18, § 17014(b)). The OTA applied the nonexclusive factors from Appeals of Bragg (2003-SBE-002) to weigh his connections.

Registrations and Filings: This factor was mixed. The taxpayer held a Nevada driver’s license, favoring Nevada residency. However, he registered a substantial number of luxury vehicles in both states, rendering that factor neutral. His divorce filing in California was offset by his marriage in Nevada.
Personal and Professional Associations: This factor slightly favored Nevada. While his entertainment work was global, his business entities were registered in Nevada. The court noted, however, that the use of a Canadian address for these entities suggested they may have been managed from Canada, weakening the connection to Nevada.
Physical Presence and Property: This category weighed heavily in favor of California residency. The court reiterated the significant disparity in days spent in California versus Nevada (e.g., 144 days vs. 13 in 2013). His California real estate holdings were also far more substantial in both size and value than his Nevada properties, particularly after the purchase of the 8,633 square-foot Malibu home.

The OTA concluded that the taxpayer’s physical presence and property ownership in California overwhelmingly supported California residency. Citing Appeal of Bracamonte, the court emphasized that physical presence is a factor of greater significance than formalities like a driver’s license. Therefore, the court held that Mr. Peters was a California domiciliary who left the state only for temporary or transitory purposes and was, accordingly, a California resident for the 2012, 2013, and 2014 tax years.

Interest Abatement

The taxpayer also requested an abatement of interest, arguing there were unreasonable delays by the FTB during the protest period. Under R&TC § 19104, interest may be abated for unreasonable errors or delays caused by ministerial or managerial acts of the FTB. The OTA’s jurisdiction is limited to reviewing for an abuse of discretion, which occurs only if the FTB’s refusal to abate is arbitrary, capricious, or without a sound basis in fact or law (Appeal of Gorin, 2020-OTA-018P).

The FTB had already agreed to abate interest for two periods totaling over 21 months. The taxpayer contested four additional periods. After reviewing the FTB’s worklogs for the disputed periods, the court found evidence that FTB staff were actively working on the case—reviewing documents, conducting research, and communicating with the taxpayer. Since the FTB demonstrated that employees were assigned and active on the case, the court found no abuse of discretion in the FTB’s refusal to abate further interest.

Holdings and Disposition

The OTA held that the taxpayer failed to show error in the FTB’s determination that he was a California resident for the 2012, 2013, and 2014 tax years. It also held that he did not establish a basis for additional interest abatement. The FTB’s actions were sustained, with the exception of the interest periods the FTB had already agreed to abate.

Conclusion for Practitioners

The R. Peters case serves as a reminder that in California residency disputes, objective factors of physical presence and the location of a taxpayer’s primary family connections often outweigh formal indicia of residency, such as a driver’s license or business registrations. Practitioners must advise clients that California tax authorities will look past formalities to the substantive connections a taxpayer maintains with the state. The court’s reliance on credit card data underscores the importance of maintaining meticulous records to either support or rebut a day-count analysis. Finally, this case reinforces the high bar for prevailing on interest abatement claims; merely citing the passage of time is insufficient if the FTB can demonstrate that its staff was actively engaged with the case.

Prepared with assistance from NotebookLM.