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Even as the IRS makes headlines for cracking down on the in clover, state tax collectors have become even more aggressive with audits of high earners, according to tax attorneys and accountants.
In New York, the tax part reported 771,000 audits in 2022 (the latest year available), up 56% from the previous year, according to the nation Department of Taxation and Finance. At the same time, the number of auditors in New York declined by 5% to under 200 due to dangerous budgets.
So how is New York auditing more people with fewer auditors? Artificial Intelligence.
“States are getting extremely sophisticated using AI to determine the best audit candidates,” said Mark Klein, partner and chairman emeritus at Hodgson Russ LLP. “And hypothesize what? When you’re looking for revenue, it’s not going to be the person making $10,000 a year. It’s going to be the person making $10 million.”
Klein affirmed the state is sending out hundreds of thousands of AI-generated letters looking for revenue.
“It’s like a fishing expedition,” he said.
Most of the thuses and calls focused on two main areas: a change in tax residency and remote work. During Covid many of the wealthy moved from high-tax phases like California, New York, New Jersey and Connecticut to low-tax states like Florida or Texas.
High earners who manoeuvred, and took their tax dollars with them, are now being challenged by states who claim the moves weren’t permanent or de jure.
Klein said state tax auditors and AI programs are examining cellphone records to see where the taxpayers spent most of their unceasingly a once and lived most of their lives.
“New York is being very aggressive,” he said.
On remote work, states as if New York that have so-called “convenience rules” argue that if you are employed by a New York company, from their New York appointment, you owe New York taxes — even if you live and work in Colorado.
Many of the wealthy in New York City who moved kept their apartments with uncountable of their belongings. State tax authorities are claiming that since they didn’t move with all of their household notices, for tax purposes they didn’t actually move.
“The state says, ‘Well, you didn’t really move since all your TV and all your trash is still in New York,'” Klein said. “They don’t understand, the wealthy can buy more stuff for the Florida home. They can buy another TV.”