Stranded in California: Coronavirus Lockdown and Nonresident Status


CA residency and coronavirus

The Issue

Can COVID-19 orders make you a resident? Since the COVID-19 emergency struck, tens of thousands of nonresidents have found themselves marooned in California due to coronavirus travel restrictions. The typical situation involves a seasonal visitor forced to remain in a vacation home longer than intended. But it runs the gamut, involving temporary visits to California prolonged by stay-at-home orders, or by the increased risk of contracting the coronavirus posed by traveling back home, particularly where the only feasible method of transportation is via commercial airline. Some nonresidents have even been formally quarantined due to a family member becoming infected. Unable to return home as planned, many nonresidents find they have already spent the majority of the year in state.

In those scenarios, it’s reasonable for out-of-state visitors to ask (as many contacting my office have) whether they will be deemed California residents due to the extra time spent in coronavirus lockdown. And the corollary question to that is, will the Franchise Tax Board, California’s tax enforcement agency, find out about the extended sojourn, and if it does, how will that affect the likelihood of being audited?

The Short Answer

The short answer is, remaining in California longer than planned for reasons not within your control is, in most cases, a temporary or transitory purpose. Therefore, unexpected delays in leaving California, beyond the power of the nonresident to mitigate, don’t usually confer residency status. The coronavirus pandemic is just such as case.

However, as usual with residency rules, it’s never that simple. Context may determine whether getting locked down in California jeopardizes nonresidency status. The good news is, the year is only half over, and that means even the worst-case scenarios can be managed in the remaining months of 2020. For nonresidents still stranded in California by the coronavirus emergency, what they do next may make all the difference.

And now the long answer.

Time Isn’t Everything In Residency Determinations

To start with, let’s put the scenario of a nonresident’s stay prolonged by the lockdown in its legal context.

Nonresidents can obviously spend a reasonable amount of time in California without forfeiting their nonresident status. The rule is: California residents are individuals who are in state “for other than a temporary or transitory purpose.” Cal. Code Reg. § 17014. Flipping that definition around tells us what a nonresident is: a person who is in California for temporary or transitory purposes.

Some temporary purposes are evident: vacations, family visits, passing through the state on the way to another destination, business conferences, medical procedures. Others situations may be less clear, but can also meet the definition: seasonal work (even if you’re a professional athlete earning millions of dollars), coming to California to work on a specific project (even if you’re a famous actor making a movie and getting paid millions of dollars), caring for an ailing family member or friend, dealing with a complex legal proceeding.

While the length of the visit is always relevant to determining whether the purpose is temporary or not, there’s no strict “majority time rule” in California residency law. Merely marking x’s on a calendar and tallying them is not how the FTB determines residency for tax purposes (or at least it isn’t what the law allows the FTB to do). Rather, the FTB follows a “facts and circumstances/closest connection test”. Simplified, the test involves reviewing all of a taxpayer’s contacts with California and all of the contacts with every other tax jurisdiction, and weighing them. Time spent in California is an important factor in that test. But it’s just one factor. This article provides a more detailed discussion of in-state presence as a residency factor, particularly the six-month presumption, and how it is often misinterpreted.

Accordingly, it’s quite possible to spend more than six months in California and remain a nonresident, if you’re doing everything else right in terms of limiting contacts with California in comparison with your home state, and hence validating that the stay is temporary, not permanent. Conversely, it’s possible to spend less than six months in California and still lose nonresident status. Indeed, even if you spend no time in California during the tax year, you can be deemed a resident (as many audited expatriates have learned to their chagrin).



Manes law pull quote

. . . when taxpayers are forced to remain in California due to circumstances beyond their control, the FTB may find itself on thin ice



Put another way, while time spent in California is an important factor in determining residency – often the dispositive factor – no one thing makes you a resident, and no one thing makes you a nonresident, not even spending significant time in California (and, pointedly, not even getting stranded in California for a lengthy period due to a national health emergency like the coronavirus lockdown). That said, don’t let this analysis depreciate the commonsense rule of thumb that the less time spent in California, the better, from a residency planning perspective. Quantity has a quality all its own: a “vacation” that last two straight years, by mere virtue of its length, isn’t a temporary stay – it’s living permanently in California. Ultimately, however, the purpose of a stay is more telling than its duration.

“Circumstances Beyond His Control”

The whole legal theory underlying California residency law is that taxpayers make choices. FTB holds nonresidents responsible for conduct they have under their control: buying a home here, taking a job here, spending long periods of time here. Indeed, in one of the seminal residency cases, Whittell v. Franchise Tax Board, the court insisted on this volitional aspect: “voluntary, physical presence in the state is a factor of greater significance than the mental intent or outward formalities of ties to another state.” [Emphasis added].

Accordingly, when taxpayers are forced to remain in California due to circumstances beyond their control, the FTB may find itself on thin ice. The leading case for this is Appeal of Edgar Wooley. Wooley, affectionately known as “The Beard” for his impeccable goatee, was a successful radio, Broadway, and film actor in the 1940s and ’50s, perhaps best known for his role in the Cary Grant movie, The Bishop’s Wife. In late 1944 he traveled to Hollywood from his native New York to work on a film. Having completed that project by the end of the year, he planned to return to New York, but was immediately hired to make a second film, anticipated to take several months. Unfortunately, a lengthy (and at times violent) set directors’ strike was called, delaying production by several month. When the film was finally completed, illness forced him to remain in California another month or so. All in all, Wooly wound up spending most of 1945 in Hollywood. There was no doubt that if Woolly had just made the movies and left, as he intended, his New York residency status would not have been questioned. But the FTB argued the extra time spent in California due to the labor dispute and the convalescence transformed the actor into a California resident.

The court disagreed. It concluded Wooley’s original temporary stay in California remained temporary because it was “prolonged by circumstances beyond his control.” Citing the FTB’s own regulations that state presence in California for health reasons confers residency only where it takes a “relatively long or indefinite period to recuperate”, it discounted the extra time Wooley remained in state recovering from his illness. And the strike, reasoned the court, did not “result in any change in his intention to remain here for other than purely temporary or transitory purposes.” It just slowed things down.

In short, The Beard gave the FTB a haircut.

The Wooley Rule appears in other cases. In Appeal of Ada Wrigley, the court reached a negative conclusion for the taxpayer, but it upheld the principle that circumstances keeping nonresidents in California longer than intended do not transform a temporary purpose into a permanent commitment. Wrigley (the wife of the chewing gum and Cubs baseball Wrigley) had for many years made relatively short vacations to one of her several California mansions to avoid the harsh Chicago winters. The pattern was that of a temporary seasonal visitor and raised no issue of residency. However, in 1945, she suffered a serious illness during a California visit, and her doctors recommended she postpone her return to Chicago. She did so, for over a year. And in subsequent years she spent the vast majority of her time in California, until her death.

The FTB claimed Wrigley became a resident in 1945. The Wrigley estate countered that she was merely a seasonal visitor, forced to stay in California longer than anticipated by bad health and doctor’s orders. The court agreed with the FTB. While it said it gave due consideration to Wrigley’s health issues, it could not conclude that after 1945 Wrigley was merely recuperating from a health emergency. Citing evidence of her chronic health problems and her lengthy stays over several years, the court concluded that even if her visits had a health purpose, they were intended to be indefinite or long term. The logic, however, was a backhanded confirmation of the rule: if Wrigley had remained in California longer than usual only to recover from her immediate health emergency, she, like Woolly, would have presumably remained a nonresident.

Limitation To The Wooley Rule: The Nine-Month Presumption

Having articulated the rule, it’s important to point out its limitations. Even if taxpayers can establish that circumstances beyond their control resulted in a longer-than-planned stay in California (which otherwise would be exempt from residency), at some point, even an involuntary stay will confer residency status. Specifically, a number of cases rule that the “grace period” is nine months. After that, regardless of whether unexpected circumstances delayed the taxpayer from leaving or not, it is exceedingly difficult to convince a court the person isn’t a resident without providing additional substantial evidence of nonresidency.

The figure isn’t arbitrary. These cases invoke the nine-month presumption of Cal. Code Reg. §  17016, which states that if an individual spends in the aggregate more than nine months of any taxable year in California, his residency is presumed. The presumption is rebuttable, but no case has been decided in the taxpayer’s favor where the rebuttal is based entirely on the Wooley Rule. The lesson is clear: if a nonresident’s temporary stay in California is involuntarily prolonged, it’s important to take measures to limit the time to ninth months or less in aggregate during that tax year, otherwise a presumption of residency will arise requiring more than invoking Woolsy to overcome. Indeed, in the Appeal of Joseph and Marion Fields, the court states directly that Wooley does not support the proposition that “a period of illness is excluded from the nine-month period.”

The COVID-19 Emergency

Now to the point. There are obviously no published court cases on how the coronavirus emergency travel restrictions will affect the status of nonresidents marooned in California, and won’t be for years, if at all. But the above principles apply. If a nonresident came to California for a temporary or transitory purpose, but couldn’t depart as planned because it would violate a state or local stay-at-home order, the temporary visit isn’t transformed into a permanent stay. This falls squarely under the Wooley Rule. There is no principle in residency legal theory that requires a taxpayer to violate the law in order to return to their home state in an expeditious manner. Consequently, the extra time in California resulting from lockdown orders will not in themselves undermine an out-of-state resident’s status.

In fact, not only does the current pandemic fall under the Woolly Rule, but, ironically, it does so even more than Wooley’s situation itself. While Wooley wasn’t to blame for his prolonged stay in California, neither was the government of California at fault. In contrast, the stay-at-home order that stranded thousands of nonresidents here is in fact the result of California government action. That doesn’t mean California lacked good reasons to issue the lock-down order as a way to deal with the COVID-19 emergency. But it does mean that it seems blatantly unfair for California to force nonresidents to remain in state longer then they intended, and then turn around and tax them as residents for doing so. A judge would likely find that position galling.

But note that there are distinctions to be made here. The executive order imposing travel restrictions issued by California Gov. Gavin Newsom in March 2020, is not a paragon of clarity. It directs “all residents” to comply with the State Public Health Officer’s order that “all persons living in State of California to stay home or at their place of residence”, except with respect to essential services and other designated exemptions. Travel to one’s home state isn’t one of the exceptions. But at the same time, the wording of the order is contradictory – referring to “residents” and “all persons living in California”, in the same breath, as if they were equivalent. A pedantic interpretation might conclude that the order doesn’t apply to nonresidents. And as a practical matter, California authorities never seemed to have enforced the order against out-of-state visitors attempting to return home. An overzealous FTB examiner might try to use this to argue that nothing in the order prevented nonresidents from traveling home. But I doubt a court would look favorably on such a contrived objection. It’s fair to say state health officials probably weren’t focusing on the niceties of residency law at the time.

A more creditable objection from the FTB might apply to nonresidents who could have left California in a timely manner (either before the order or after it was lifted), but were understandably concerned that travel represented an unacceptable risk of contracting the coronavirus. This is particularly true for older persons, since it was known from the start that COVID-19 posed a special threat to that demographic. The FTB position might be that the Wooley Rule isn’t about calculating risk, but only about circumstances that actually prevent a nonresident from leaving California. But again, this position ultimately seems specious. The Wooley Rule doesn’t directly articulate a standard for determining what sort of circumstances beyond the taxpayer’s control merit a decision to remain in California. But presumably a reasonableness standard forms the basis of the opinion. Was it reasonable for Wooley to remain in California while recuperating from a medical procedure, as opposed to moving heaven and earth getting back to New York in order to shorten his California stay? The court seemed to think so, and didn’t even bother to gauge the obvious prudence of his decision. If the Woolly Rule applies to a medical procedure, it would seem to apply to limiting exposure to a deadly disease. It would be a hard case for the FTB to make, that residency law requires people to risk their lives to get out of Dodge or be taxed.

Post-Lockdown Planning

That doesn’t end the matter. As the lockdown orders are lifted, what a nonresident does next may ultimately determine their residency status for 2020, even if the Wooley Rule affords some protection for the duration of their involuntary stay. That’s because residency audits are always retrospective. They look at what a taxpayer did not for just half the year at issue, but during the entire year. The regulations put it this way:

“In as much as the status of an individual as a resident or a nonresident during any taxable year will generally depend upon his activities or conduct during the entire year, it will not be possible, ordinarily, to determine his status until after the close of the year.” Cal. Code Reg. § 17014(e).

This means, if an audit does occur, the FTB examiner will review all of the taxpayer’s conduct during the year, not just the fact that they got marooned in California during the COVID-19 crisis.



Manes law pull quote

. . . the nine-month presumption needs to be avoided like Kanye West at the MTV Video Music Awards




And here is where the nine-month presumption cases discussed earlier come ominously into play. Nonresidents may not be held responsible for remaining in California for the months the state was in lockdown. But if they fail to leave California after the travel restrictions cease, or if they return to California afterwards, especially if in aggregate they wind up spending more than nine months in California, then their nonresidency status may not survive scrutiny.

Accordingly, nonresidents stranded in California by travel restrictions should carefully reevaluate their contacts with California for the remainder of the year. That may involve leaving California as soon as practical, delaying scheduled return trips until next year, or reducing other contacts with the state so that, in totality, they will not have the profile of a nonresident when the year is evaluated in its entirety.

Above all else, nonresidents should resolve not to get trapped by the nine-month presumption for 2020, taking into consideration the extra time marooned here, even if that involves significant cost, inconvenience, and rescheduling future trips to California during the remainder of the tax year. For reasons already discussed, the nine-month presumption needs to be avoided like Kanye West at the MTV Video Music Awards.

Residency vs California-Source Income

Nonresidents should also note that residency status isn’t the only income tax issue raised by being caught in the lockdown. For nonresidents who had to work remotely or otherwise manage their out-of-state business during the time they were unable to leave California, income sourcing concerns may be looming. Specifically, taxpayers who receive employment income (that is, W-2 wages), for work performed while physically present in California usually generate taxable California-source income, which has to be reported regardless of their residency status.

This rule is often honored more in the breach than the observance by the category of nonresidents “working while on vacation”. Though it’s universally accepted in the modern economy that almost everybody with a management job or running their own business works while on vacation, California has never developed a systematic method for auditing that situation. The FTB regulations assume people on vacation do nothing but enjoy themselves. Leaving aside the practical issue of monitoring the occurrence of such work, the tax analysis of worked performed while in California for other, temporary purposes can get complicated. Whether California-source income results from working while on vacation depends on the nature of the work, the type of income, the contractual and equity relationships between the nonresident and his business, and other factors. There’s nothing intuitive about it. That may explain why the FTB has tended to turn a blind eye to the practice. That said, one would expect, with the coronavirus pandemic having stranded tens of thousands of nonresidents in California for months on end, the FTB might be contemplating ways to track and audit nonresidents who performed compensable remote work while in coronavirus lockdown.

Audit Risk

There is another aspect to the coronavirus lockdown scenarios: audit risk.

If a nonresident isn’t audited for residency, the above analysis relating to an extended visit to California under a stay-at-home order is moot. The question will never be raised. A typical nonresident generally isn’t called upon to do the FTB’s work and figure out their residency status under the complex case law involving emergency stays in California, the Wooley Rule, or the meaning of the travel restrictions orders.

Accordingly, the relevant question is, has the emergency increased the risk of an audit for those nonresidents stranded here, in which case they will have to respond with the kinds of arguments discussed earlier? The answer is, it depends.

Where It Matters

The lockdown affects audit risk for nonresidents who have California-source income (or are reporting in 2020 because it’s the year they ceased to be California residents). The reason is, nonresidents in those categories have to file a nonresident return (Form 540NR). The 540NR has an attached schedule, called the Schedule CA. Schedule CA requires a nonresident to indicate how many days they spent in California “for any purpose.”

You can see where this is going. If a nonresident has to file a 540NR in 2020, and the lockdown stranded them in California for three, four, or five months beyond what they had planned, the Schedule CA may show the nonresident spent most of the year in state, even if after the order is lifted, the nonresident leaves California never to return for the rest of the year. It would be even worse if the nonresident in fact has to return to California for other purposes resulting in more time in California. And, as indicated, if the nonresident imprudently winds up spending more than nine months in California, the consequences can be dire.

The point is the FTB examiners will be aware of the time a reporting nonresident spent in California. The more time spent, greater the audit risk. If the time is more than nine months, an audit is a near certainty (unless explained, as the procedure discussed below). Further, circling back to the “working while on vacation” issue, if a nonresident reports having spent the bulk of the year in California, while earning W-2 income (something the examiner will know by looking at the taxpayer’s Federal Form 1040, which is required to be attached to the 540NR), the FTB may justifiably wonder if any of the work was performed while the nonresident was marooned in California for months on end. If no such California-source income is reported, the risk of the FTB auditing that issue also increases.

As a practical matter, if the amount of time spent in California exceeds six months by a few weeks or even a month, the audit risk isn’t remarkably increased. The FTB doesn’t routinely audit nonresidents just because their 540NR reports they overstayed the half-year mark. In fact, such audits are rare. However, the more the stay overshoots half the year, the more likely an examiner is to consider whether a residency audit is appropriate (which usually starts by gathering information about the taxpayer in the public domain – a good reason to review and manage that information where possible). And, again, in Residency Monopoly, the nine-month mark is almost an instant “Go Directly to Audit” card.

Where It Doesn’t Matter

As you might gather from this, where the lockdown doesn’t matter for audit risk is for nonresidents who don’t have to file a California return in 2020. Without the Schedule CA, the FTB has no way of knowing a particular nonresident spent extra time in state or not. Despite internet myths, the FTB is not monitoring nonresidents or peeking through their vacation home Levelors. That said, a residence audit can be triggered by other conduct, mostly involving avoidable mistakes. And if a residency audit is initiated, the first thing the auditor will ask is how long the taxpayer stayed in California. This article discusses the most common situations that lead to a residency audit for nonreporting out-of-state taxpayers.

A Tax Strategy For Nonresidents In Lockdown: Invoking The Wooley Rule

But all is not lost for nonresidents who have to report the number of days they spent in California, even if excessively prolonged by the coronavirus emergency. The FTB has a procedure for nonresidents to explain why the stay was temporary, even with the extra time. Specifically, nonresidents can attach a signed statement to the Form 540NR detailing the reasons why they are not residents, along with evidence supporting the claim. In essence, the statement would invoke the Wooley Rule and show why it applies.

Nonresidents should be very careful about filing the statement. Any information in it can be used against you by the FTB to establish residency, so it is imperative to carefully state the facts and to use proper legal terminology so the content can’t be misconstrued. In addition, some strategic thought should go into the decision of whether a statement is advantageous or not. If the time in California only slightly exceeds six months, the risk of an audit probably isn’t increased substantially. But the more time, the more risk, which may favor using the statement to forestall an audit. Further, filing the statement raises its own risk: the statement may open the door to additional questions by the FTB if it includes negative facts or circumstances that raise more issues for the examiner than it resolves. The decision to file the statement should be made with these considerations in mind.

Note also that nonresident with no reporting requirement can file a zero-income tax return under the same procedure. The concept is that it starts the four-year statute of limitation running on a residency audit. Some tax practitioners counsel this for clients in this situation. I generally do not for reasons outside the scope of this article.


To summarize the considerations affecting nonresidents stranded in California under COVID-19 stay-at-home orders:

  • Being stranded in California for reasons beyond your control generally does not put your nonresidency status at risk, if you fall under the Wooley Rule.
  • However, even if you fall under the Wooley Rule, you should plan to minimize your time in California for the balance of the year, and in no way should you spend more than nine months in aggregate in California if it can be avoided – even if it requires considerable cost and inconvenience.
  • Nonresidents caught up by the travel restrictions may have increased audit risk if they have to report California-source income for the year, since the nonresident return will inform the FTB of the extra time spent in state.
  • A tax strategy to minimize the increased audit risk involves filing a statement invoking the Wooley Rule, but due consideration should be given to the downside of using this procedure, and if it is filed, the statement should be carefully drafted to avoid unfavorable inferences by the FTB.

2021 Update

In January 2021, the FTB updated it COVID-19 FAQ page to include a brief discussion of how the lock-down order might affect the residency status of nonresidents stranded in California. The discussion is rather cryptic, but it concedes the possibility of rebutting the nine-month presumption based on the following factors:

  • When the individual entered California.
  • Whether the individual remained in California after the COVID-19 period (and if so, how long).
  • Whether the individual remained in California throughout the COVID-19 period.
  • Whether the individual provided COVID-19-related services in California.
  • Whether the individual cared for an at-risk family member or friend.

The enumeration of these particular factors suggests that nonresidents who couldn’t leave California during the COVID emergency (say, because travel would be too risky to their health) might be able to rebut the nine-month presumption, if they ultimately left when they could safely do so. And a possible rebuttal is implied for nonresidents who either provided professional medical services relating to COVID while in California, or who provided care for family members or friends related to COVID. But it goes no further than that.

The discussion can be found here.



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