State taxes - too late to file?

This is separate from my post today about pensions and the FBAR.

Basically, my fiancee and I had no idea she is supposed to file state tax forms annually. She is from, and resided, in South Carolina before moving here 6 years ago.

Yesterday, while looking for something else, I found this out. She has always claimed Foreign Income Exclusion as she earns below the threshold (the $93,500 is it?). She files her tax return every year but has never filed a state tax return due to honestly not knowing about it. This might be because she came to the UK while she was still a student.

As it stands she has no wish to return to SC but I know they'll still class her as a resident due to have a bank account and driver's license there.

If we did get in touch and fill out the forms from previous years would she owe anything anyway? Would she get a slap on the wrist for not doing it for 5 years or do they just not care because we're very small fish and don't owe them a thing?

Thanks!

I'd first and see if SC would still even require you to file taxes. There are some states (like California) that are stringent on breaking ties for income tax purposes; I don't think that South Carolina is one of them so you may already be in luck. If you find that you should have been filing, I'd back-file for those years (unless the statute of limitations has expired according to the state's law) and see what happens.

Hi Kelly,

Unfortunately SC is one of the 'strict' states, along with California, New Mexico and Virginia.

I don't think she can break the ties with SC because she has a bank account there that she uses to pay her student loans.

Can you explain a little more about the statute of limitations and how this might affect us?

Thanks,

Graham

There are lots of other criteria that are used to decide residency other than having an in state bank account. Looking at the residency criteria given by SC it seems pretty easy to become non-resident.

http://www.sctax.org/NR/rdonlyres/F34AEFF8-F846-4EB3-B0C3-D3FC7A01075B/0/FILINGREQUIREMENTS.pdf

http://www.sctax.org/NR/rdonlyres/F92672D8-E51A-4A9B-83D0-58AD0BF8F8BE/0/5Chap5.pdf

nun, you've really helped me out today - thank you.

I'd read that first link earlier before your posting but maybe I didn't take it in. Having looked at it again, with the second link, I think my fiancee doesn't need to file her state taxes at all. Regardless of a bank account in the US and a drivers license, she has lived her permanently for five years and worked too. Even when she was a student her goal was always to stay and I think we can prove that if it ever came to it.

The first paragraph of the SC Filing Requirements on their site states:

"You are required to file a South Carolina income tax return if you earn income in South Carolina and are required to file a federal return"

And the non-resident filing requirements say:


"If you answer YES to any one of the questions below, file a South Carolina income tax return.

Did you have South Carolina income tax withheld from your wages?

Are you a nonresident or part-year resident with income taxed by South Carolina?"


So, we're good. The articles about South Carolina being one of the 'difficult four' aren't very accurate then...

Your fiancee will have to convince SC that she has changed her domicile to the UK. But if she intends to marry and stay in the UK indefinitely I think it can be argued that she has changed her domicile and the bank account is just a convenience to pay US bills. I would get rid of the driver's license though. Here is the relevant SC language.

SC Reg. §117-620.1 addresses when a South Carolina resident changes domicile to a foreign country and reads:
Where it can be shown that an individual has become domiciled in a foreign country and, therefore, no longer a resident of this state and has severed all connections with this state and has clearly shown his or her intention to reside abroad permanently with no intention of returning to South Carolina, such individual is not subject to the income tax laws of this state.

To the OP: I didn't know if there were any applicable statutes of limitations or not (I know virtually nothing about South Carolina income taxes since I've never lived there). What I meant is that in some places if you've failed to file you don't have to go back more than a certain number of years as long as you properly file in the future.

A drivers license is one of the things that many states use to claim ties and 'intent to return'. Voter registration, vehicle registration, property ownership and even library cards are also used, as are bank accounts. Absolutely dump the license.

If the bank account is with a bank that has branches in multiple states (as most do), just change the address to the UK address....which you should really do anyway. That confirms a foreign residence and intent to change domicile.

You can also write to the SC tax commissioner (or equivalent) and ask for a ruling on domicile, but the SC law is pretty clear. Just sever connections, including the license; most (maybe all) states actually only issue a DL to a RESIDENT, and your fiance likely doesn't want to misrepresent her situation to the DMV.

Thanks for the info guys. We've booked a consultation with a tax professional tonight to talk about this and a couple of other issues.

@nun We're actually getting married in October, albeit in South Carolina due to her family being there. I don't know if that makes a difference. We intend to live in the UK.

@Kelly85 fingers crossed if we do have to file the taxes we don't have to go right back! From the documentation I've read on the SC tax site, if we're excluded from paying US tax it's the same in the state returns. For this reason I don't think she can be fined either as they would charge a percentage of the money owed, which, in our case, should be zero.

@vadio yeah, we really do need to relinquish that license, especially as she can drive over there on her UK license if we rent a car. I'll look into it. I had a look through the SC DMV site, and I can't find anywhere that says you have to be a resident. She was obviously a resident when she applied but she hasn't used the license in the UK or the US since moving five years ago. I doubt having a license that you don't use is illegal and I can't find anything on the site that says how to 'give in' the license.

In terms of her bank, I believe, but I'd have to check, that the statements do come to our home address (UK). The bank is Wells Fargo so they're all over the US, not just in SC.

I'm not sure if she's registered to vote, but she owns no property and if the bank statements are sent here and they can see it's only used to pay student loans I think it would be unreasonable to say that a US driver's license proves a domecile, especially when you consider all of her income is here, we're engaged, about to buy a house, she has a UK driver license, pays UK taxes etc. But I suppose if they're really fussy they could go against that.

I don't think she's bothered about having to file taxes in the future, I think she's worried they'll penalise or punish her for not realising she had to do them for the last five years.