State tax officials are using AI to go after wealthy payers

🌈 Abstract

The article discusses the aggressive tax auditing practices of the New York state tax department, which has seen a 56% increase in audits in 2022 despite a 5% decline in the number of auditors. The state is using artificial intelligence to identify high-earning individuals as audit targets, particularly those who have changed their tax residency or are working remotely.

🙋 Q&A

[01] Tax Auditing Practices in New York

1. What are the key facts about the increase in tax audits and decline in auditors in New York?

• The New York tax department reported 771,000 audits in 2022, up 56% from the previous year.
• At the same time, the number of auditors in New York declined by 5% to under 200 due to tight budgets.

2. How is New York able to conduct more audits with fewer auditors?

• New York is using artificial intelligence to identify high-earning individuals as audit targets.

3. What are the two main areas of focus for the state's tax audits?

• Changes in tax residency, as many wealthy individuals moved from high-tax states to low-tax states during the COVID-19 pandemic.
• Remote work, as New York claims that if an employee is working for a New York company, they owe New York taxes even if they live and work in another state.

4. How are state tax authorities determining if taxpayers have legitimately changed their residency?

• They are examining cellphone records to see where the taxpayers spent most of their time and lived most of their lives.
• They are also claiming that if taxpayers didn't move all of their household items, they didn't actually move for tax purposes.

[02] Impact on High-Earning Taxpayers

1. Who are the main targets of the state's aggressive tax auditing practices?

• High-earning individuals, particularly those making $10 million or more per year.

2. What is the perspective of tax attorneys and accountants on the state's tactics?

• They view the state's approach as a "fishing expedition" to generate revenue, rather than a targeted effort to ensure compliance.

3. How are the state's tactics impacting high-earning taxpayers who have changed their residency?

• The state is challenging the legitimacy of their moves, claiming that they didn't actually move if they didn't take all of their household items with them.