An individual who lives outside New York and maintains a place of abode in New York, even for occasional use, may be selected by the New York State Department of Taxation and Finance (DTF) for a personal income tax examination. The outcome for an individual determined to be taxable as a New York resident can be costly, as he will be taxed on virtually all of his income.
Such a personal income tax audit will generally cover two areas of inquiry to determine whether the individual should be taxed as a resident of New York: domicile and statutory residency. Where the DTF agrees that the individual is domiciled outside New York, the examination will focus on determining whether the individual was a statutory resident of New York as a result of spending in excess of 183 whole or part days during a given tax year within the state (Corey Rosenthal, Fred Komarow, and Patrick Duffany, “Who Is a New York Resident?” The CPA Journal, April 2015, http://bit.ly/2kjK8XJ).
The DTF will usually require the taxpayer to supply various forms of standard documentation, such as credit card and bank statements, E-ZPass records, personal calendars, diaries, and travel itineraries, to produce a yearly calendar quantifying the taxpayer’s total number of days spent within and without New York, along with “open” days wherein the taxpayer’s location cannot be determined from the information provided. In November 2016, this column discussed how the proper utilization of specific electronic and digital records can also be an additional source of evidence of a person’s daily whereabouts that may reduce the number of New York days determined by the DTF below the 183-day statutory residence threshold (“New York Residency Audits and the Enhanced Utilization of Electronic Data Records,” http://bit.ly/2joWjSQ). This article will discuss the issues that CPAs need to be cognizant of when utilizing cellphone records during a New York State personal income tax examination.
The DTF routinely requests cellphone records from the carrier used by the taxpayer during the audit period. These records will usually be separated into voice and data transmissions, which are logged to a given cellphone number in chronological sequence. The DTF will utilize these records to attempt to refute days when a taxpayer has provided standard evidence showing that she was not present in New York, or to establish her whereabouts on undocumented days. Since cellphones have largely replaced landline phones, and even sometimes supplanted personal computers, they hold an enormous quantity of user-specific data that can be utilized by the DTF during a residency examination. Anyone representing a taxpayer under audit must confirm that this information is being used and applied correctly. Therefore, it is crucial to have a basic understanding of cellphone technology, along with its inherent limitations and methods, to properly analyze cellphone records and ensure that they will not inadvertently push the taxpayer’s New York day count beyond the 183-day limit.
Broadly speaking, a cellphone works like a two-way radio or “walkie-talkie,” but with expanded technologies that increase transmission distance, audio quality, and the ability to maintain a conversation while in motion without having the call inadvertently terminated. It must also accommodate and correct for the inevitable degree of interference that will result from all of the other users on a particular network at any given moment.
Each time a person turns on his cellphone, a signal is emitted that registers with every cell tower within range of the phone; this indicates that a network is available if the user places or receives a call. If the person is moving, the cellphone will emit a signal every few seconds to ensure that it is in contact with a cell tower or another network, depending on the distance travelled over a given time period. This signal emission, referred to as a “registration,” will continue regardless of whether the user is engaged in a phone call or data transmission, whether voluntary or automatic, and will ensure that the cellphone is always in contact with a cell tower, even if the phone itself is in motion. Urban areas contain a larger number of cell towers to efficiently handle heavier network traffic, but the registration signal process is generally the same regardless of cell tower density.
The registration signal also contains information to identify the phone’s number, which is recorded by equipment located at the site of the cell tower. Other information compiled can include the phone number at the other end of the communication, the date, the start and end time of the call, and the identity and location of the tower or towers connected to the phone while in use.
Three important rules apply to all cellphone records:
- Whenever a call is made from or to a cellphone, the phone will select the cell tower that has the strongest connection to establish registration; however, that tower is not necessarily the closest tower (although the two tend to correlate in areas of high tower density). A cellphone may be more than 20 miles away from the tower it pings. Nonetheless, there may be an inherent degree of uncertainty whenever the DTF attempts to conclude a taxpayer was physically present in New York based solely on a review of cellphone activity on a given day, if other evidence exists to the contrary.
- Multiple cell towers may be utilized during the course of a single phone call. This process is handled by the carrier and is designed to maintain the quality and continuity of the call by automatically transferring the signal to another tower within the network. Thus, the cell tower locations involved may be spread over many miles, especially if the caller is moving.
- Utilizing Global Positioning System (GPS) technology is far more accurate for determining location than cellphone records; a GPS coordinate is generally accurate to within approximately 50 feet of where a device is actually located. The majority of current generation smartphones contain a chip that will connect to the GPS network and is generally utilized in emergencies when calls are made to 911. A cellphone will not, however, establish a historical record of its location based on GPS tracking unless a special application is installed on the phone.
As noted above, cellphone records obtained from a carrier are generally separated into voice- and data-related transmissions and can typically run several thousand pages in length. Cellphone carriers typically supply them in electronic format.
Cellular records pertaining to data transmissions are inherently unreliable for determining the location of the cellphone itself, because many smartphones will initiate automatic data transmissions for purposes of updating applications, operating system maintenance, cloud storage backups, and numerous other background functions not initiated by the user. Data and voice transmissions also have fundamental differences in the method used to transmit the actual signal; in many aspects, data transmissions allow for more variability in the overall quality of the signal being transmitted, which can result in long periods with no actual transmissions followed by extended file downloads over a greater time period. These differences make it difficult for a carrier to design a network to support both voice and data transmissions. In addition, these differences also result in two separate records of cellphone activity being generated, and the customer’s data transmission records are much more voluminous and complicated than the voice call records. Therefore, only voice records should be presented as evidence of a taxpayer’s location during a residency examination, and data related records should generally be disqualified.
The DTF will utilize cellphone records to determine those days when the individual placed (or received) a cellphone call that utilized a cell tower located within New York. If so, the DTF will generally infer from this evidence that the person was also in New York on this day. Because of the manner in which connections with cell towers take place, however, it is also quite possible that the individual was in a neighboring state. Thus, it is crucial to be familiar with the methods and underlying assumptions used in analyzing cellphone records to determine the accuracy of the DTF’s assertions.
Analysis of Cellphone Records in Residency Audits
Generally, the DTF will utilize cellphone records to confirm or refute any day when the particular taxpayer asserted she was not present in New York. For example, if the taxpayer’s personal calendar and standard records indicate she was in New Jersey on February 3, 2015, the DTF will review the corresponding record of cellphone activity with that connection date.
Cellphone records of voice transmissions will generally contain myriad types of information. Most important are the following:
- Connection date (month, day, year). As previously noted, cell-phone records are recorded and arranged in chronological order.
- Connection time, given in UTC (Coordinated Universal Time), similar to what is commonly referred to as Greenwich Mean Time.
- Seizure time, defined as the time it takes to connect measured from the moment “send” is pressed to when the call is connected.
- Elapsed time, that is, length of the phone call.
- Originating and terminating numbers.
- Cell locations, that is, the actual location (in longitude and latitude) of the cell towers that were utilized during the call.
Using this example, the first several columns of cellphone records may indicate a call was recorded as shown in Exhibit 1. First, the UTC connection time must be converted into Eastern Standard Time (EST) to ensure that the proper date is being analyzed. The UTC connection time might be in military time, in which case that conversion must also be performed. The example below will demonstrate why this is so important.
Sample Cell Phone Record
To convert from UTC to EST, it is first necessary to subtract five hours from the UTC time (four during Daylight Savings Time). If the record is in military time, 12 hours must be subtracted to convert to standard time for any result greater than 12. The resulting connection date and time would be February 2, 2015, at 10:44 PM. Since the call only lasted two minutes and 32 seconds, none of it actually occurred on February 3, 2015. Any assertions made by the DTF based on cellphone calls made late at night on a given day must be scrutinized for date and time accuracy. The World Time Server (http://bit.ly/2kjXwuV) contains a calculator that will assist in making these conversions.
Next, the location of the cell towers utilized during the phone call must be reviewed. As shown in Exhibit 2, another column titled “Cell Location” will contain the longitude and latitude coordinates (including a series of other numbers located between them that are irrelevant to this discussion) of each cell tower involved in a particular call.
Translating the coordinates of the cell tower to an actual location or address is known as reverse geocoding and is best accomplished by using a reference website (e.g., http://latlong.net) to convert the recorded latitude and longitude of the cell tower location into an actual address, as well as a satellite view.
An analysis of cellphone activity for February 2, 2015, would indicate that the individual was most likely in Scarsdale, N.Y., at approximately 10:44 p.m.; absent other evidence to the contrary, this would be deemed an “in day” for statutory residence purposes. But there would be no evidence regarding February 3.
Continuing with this example, assume the individual’s records contained cellphone calls that actually occurred on February 3, 2015. The cellphone record sequence might look something like Exhibit 3. A call was received on his cellphone at 10:22 a.m.; once a connection was established, the location of the first cell tower handling this call was located in South Brunswick, N.J., based on converting the longitude and latitude coordinates of the tower to an actual address. That additional cell towers were used for the duration of this call indicates that multiple signal handoffs occurred, and that the individual was in motion, moving north. The additional towers were located in Milltown, N.J., and East Brunswick, N.J. The towers for the second call at 2:21 p.m. were in Perth Amboy, N.J., Perth Amboy again, Charleston, N.J., Staten Island, N.Y., and finally back in Perth Amboy. Given the other tower locations, it is highly improbable that the caller was actually in Staten Island during the call; this is more likely an example of a handoff where the carrier network selected a tower that would optimize the strength of the signal and that tower happened to be in Staten Island. The contiguity of the other tower locations would also support this conclusion.
Sample Call Activity for February 3, 2015
This example demonstrates the complex nature of cellphone records and some of the inherent uncertainty that exists when the DTF uses them to support its position that a taxpayer was present in New York in excess of the 183-day limit.
Conclusions and Strategies
An analysis of the example above provides several important points to consider. First, connection dates must be checked to be certain they match the actual date being disputed by the DTF under audit. Depending on the connection time in the cellphone records, the corresponding calendar date may be different.
A cellphone call may involve multiple cell tower addresses, due to handoffs of an active signal. The distance between cell towers utilized during a single phone call may also vary by many miles based on network traffic, weather conditions, system maintenance, and, most importantly, movement of the caller. Cellular technology dictates that a cell phone will connect to the tower that provides the strongest signal, and not necessarily the tower closest to the cellphone being used. The authors have applied this knowledge, based on available facts and circumstances, during statutory residence audits of clients to successfully challenge days where the DTF attempted to assert presence of the individual in New York.
An individual who merely passes through New York, or travels to a New York airport or other transportation facility for arrival or departure, will not have such a day counted toward the 183-day threshold. These individuals do, however, accumulate an abundance of cellphone records, which may commence the moment they depart from their arriving flight and may continue until they arrive home. These calls may result in several hundred cell tower location coordinates being recorded on the cellphone records, depending on where the individual lives. The DTF will often attempt to classify such travel days as New York days, especially in the absence of alternate supporting evidence to the contrary, such as an airplane boarding pass or a taxi invoice documenting pickup and delivery. Proper analysis and geographic tracking of the progressive location of cellphone towers between the airport and home can often be used to prove that the person was merely within New York to utilize an airport, thereby refuting any assertion by the DTF to the contrary. Under these circumstances, however, it is crucial to avoid any travel deviations (such as stopping at an ATM machine on the way home, or retrieving work papers at the office) that could conceivably demonstrate actual time spent in New York other than going directly home from the airport.
Be aware that the connection time and elapsed time for a series of calls can provide valuable additional information to help determine whether the caller is in motion and the rate and distance travelled. In many circumstances, these calculations can refute an auditor’s determination of a taxpayer’s purported presence in New York by demonstrating the impossibility of covering a given distance when moving at normal speed limits.
The reliability of using cell tower records has been called into question when admitted as evidence in criminal proceedings precisely due the false assumption that a phone signal will connect to the nearest tower rather than the strongest signal within its range. On May 28, 2014, Lisa Marie Roberts was released from prison after serving nine-and-a-half years for a murder she did not commit; the cellphone records that allegedly placed her at the scene of the crime were overturned as evidence (Douglas Starr, “What Your Cell Phone Can’t Tell the Police,” New Yorker, June 26, 2014, http://bit.ly/2jJtPV7). In addition, the Connecticut Supreme Court is reviewing the appeal of Eugene Edwards, who is currently serving a 20-year prison sentence for the robbery of an 82-year-old woman in 2012. One element of the appeal is that the trial court should not have admitted evidence that Mr. Edwards’ cellphone connected to a cell tower near the crime scene at approximately the same time as the robbery occurred (Dave Collins, “Connecticut Case Challenges Use of Cellphone Tower Evidence,” Associated Press, Dec. 11, 2016, http://apne.ws/2jQCeYY). Needless to say, the standard of proof in a criminal proceeding (i.e., “beyond a reasonable doubt”) is different than defending a residency examination, which is a “clear and convincing” evidentiary standard. Nevertheless, CPAs should be aware that the use of cellphone records is not absolute.
As personal technology becomes more sophisticated, a person’s location at any given moment will be more likely to become a matter of record. Individuals at risk for residency examinations by the DTF must remain vigilant regarding the methods employed to record their whereabouts and be cognizant of the limitations of these methods and the information required to challenge them, especially cellphone records.