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Employer won't change state income source

Technical topics regarding tax preparation.
#1
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Taxpayer is in 100% in Japan, working for a Hawaii company while in Japan, tax home is Japan, and providing services that are being "consumed" in Japan.

Employer gives him a W2 with Hawaii sourced wages on it.

They wont change it.

I told the client that even if we report his Hawaii income as zero (and ask for his WH back, lol), he will receive an adjustment letter.

Note: Hawaii does not allow the FEIE.

It is also my opinion (from experience) that unless he can get the employer to correct the W2, that there is no way Hawaii will consider letting him out of it (snowball's chance in heck) and they will seek collection on the adjustment.

He asks that I report it as zero and he's gonna try.

My question is, "Can I ethically report his income to Hawaii as zero (because of the facts and circumstances)? Or am I bound to follow the W2?
 

#2
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Does Hawaii view the taxpayer as working from Japan for the employee’s convenience?

Was the taxpayer ever a resident of Hawaii?
 

#3
CathysTaxes  
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In Illinois, if the W2 incorrectly reports income to Illinois, the return has to be paper filed with a letter from the employer on their letterhead that states what wages should be sourced to Illinois. Maybe Hawaii has that.
Cathy
CathysTaxes
 

#4
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OK, for the sake of argument, let's swap Hawaii with North Carolina. NC taxes the worldwide income of its residents. Residency is defined in such a way that it sounds awfully like domicile. In that sense, NC is rather like a dodgy book or music club - once you're in, it is hard to get out. So if someone went to Japan for a shortish term and, for instance, kept a home and car here, they would be taxable to NC, subject to the usual credit for tax paid to another state or country.

So, how does Hawaii view residence? Strictly residence, perhaps counting days? Or does it view it more like domicile?

HenryDavid's second question is a very good question to ask yourself before answering any of mine.
 

#5
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http://files.hawaii.gov/tax/legal/tir/1990_09/tir97-1.pdf

Was taxpayer a resident of Hawaii before Japan? There are many examples in this document, hopefully one fits your client's situation.
 

#6
JR1  
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And where is Ms. Natalie, our resident HI practitioner?
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#7
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I'm not sure how Hawaii will view convenience (Hawaii examiners tend to just rule against whatever they want and tell you to appeal it), but the employee is there because he lives there permanently.


The taxpayer used to live in Hawaii, though has no more ties on Hawaii.
 

#8
keiser  
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HI exerts a high standard for proof that tax residence has been changed.
My friend moved from HI to Bangkok permanently and was audited by HI tax department after he stopped filing.
Auditor dropped case when I showed that he no longer had HI driver's license, library card, bank accounts, voting registration or real property and had established comparable ties in Bangkok.
Auditor was not unreasonable but I suspect you will need to show similar facts to prevail.
I sense, however, that your client maintains HI ties or he would not be filing in HI.
 


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