Six Months and a Day: Who is Advocating for You? – By Eric Donner, Six Months and a Day Co-Founder

The next battle of the sate residency income-tax audit war is here. States have been deploying increasingly aggressive techniques and technology to stop the bleeding from loss of state income tax revenue.

States, like New York, have been quietly accelerating their ability to detect and defend against this loss by leveraging high-tech tools, including artificial intelligence (AI).

If you’re making a move to a no-tax or low-tax state or thinking about making one, this can be a huge problem for you. For example, New York State has spent millions on its tax audit platform, using IBM’s AI technology to catch even the slightest signals that might trigger an audit.

New York already does more than 3,000 non-residency audits annually and has collected more than a billion dollars from taxpayers since 2010. If you are a high-income earner and you’re moving from New York to a low-tax state, you are almost guaranteed to be audited. More than half (55%) of those facing a New York State residency audit lose and pay an average of $144,270 for each year audited.

In an attempt to keep your hard earned tax dollars, state auditors are using extremely sophisticated software, AI, and predictive intelligence to recover New York taxes. And other states are following suit. If you’re chosen for an audit — and the odds are you will be — who is advocating on your behalf?

How AI Is Increasing Enforcement

Artificial Intelligence provides auditors with advanced relational database capabilities when examining residency changes. The software can now automatically scan millions of records across any number of databases to check records and find correlations.

For example, New York’s intelligent screening system, Case Identification and Selection System (CISS), uses predictive analysis to identify questionable items on returns. AI finds anomalies and Machine Learning continually improves its accuracy.

State analysts say the AI surfaces an additional $100 million in tax collections that might have otherwise gone unnoticed and led to a 350% increase in criminal tax fraud investigations since implementation.

For New York, it means a more efficient way to trigger an audit and win cases. Rather than relying solely on letters, phone calls, in-home visits, and manual processes, AI can do much of the work automatically — which means more audits can be undertaken. Again, who is advocating for you, the taxpayer?

As tax forms are processed, information is automatically compared to real-time databases of personal information and cross-analyzed against screening algorithms. AI scores each return and uses predictive modeling to identify questionable items on returns.

Triggers include a significant drop of income tax paid, a missed filing, or a partial filing. These potential flags are cross-referenced with federal tax filings such as form 1040 in coordination with the IRS to see what else you’re reporting and where money was earned. For example, if you still own a business in NY or derive business income from a New York entity, it might trigger an audit.

The AI can also detect actions that you take such as renewal of fishing or hunting licenses, voter registration, and other public records that will automatically trigger a “desk audit” against you. Auditors will even check cell phone tower location records that they subpoena from your telecom carrier to track your day count. They may even check dental and veterinary records, credit card bills, your children’s school registration, vehicle licensing, travel schedules, and much more.

Once a red flag is detected, the auditors will employ these aggressive and advanced techniques against you. The process can be time-consuming and invasive.

Other States are Following New York’s Lead

It’s not just New York that is going down the high-tech track. New York state has so much case law on residency incomes tax, other states tend to follow its lead. If you’re moving from California, Illinois, Vermont, New Jersey, Connecticut, Maryland, or any other high-tax state to Florida, Texas, Nevada, or any other low-tax state, expect to face the same kind of high-tech scrutiny.

With so many states facing severe budget deficits thanks to COVID, even more aggressive enforcement is predicted.

Want to do a quick check on your risk of being audited? Take our Audit Risk Assessment.

Who’s Looking Out for You?

States are deploying the latest high-tech tools and increasing enforcement. So, we’ll ask again. Up against the government machine, who is advocating on your behalf to avoid you getting hit with a significant tax bill after making a move?

Six Months and a Day uses its own high-tech, proprietary software to help clients prepare for the domicile change process. By reverse-engineering the state residency audit process and requirements, we create a personalized audit trail to help you better prepare. We’ll guide you through each step of the process, create a risk assessment score, and customize a domicile change plan to help you mitigate your chances of facing a state residency income-tax audit.

Not only can we help you better prepare for a state residency audit, but we also offer a White Glove service that can help you manage all the tasks associated with transferring your domicile from a high-income tax state, including your own Domicile Change Advisor and Residency Coach.

Schedule a call with Six Months and a Day today and learn how we can help you reduce your audit risk.

Sources

https://www.cnbc.com/2019/03/08/tax-collectors-chase-rich-new-yorkers-moving-to-low-tax-states.html

https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494

https://www.sixmonthsandaday.com/post/its-not-just-six-months-and-a-day

ABOUT:

Eric Donner

Co-Founder Six Months and a Day

Whether they’re planning to exit their business or preparing it for the next generation of their family legacy, Eric always strives to find creative solutions to his clients’ needs; specializing in business succession plans for the company, while helping the owners with their successful future Exit. “In many cases, I’m helping my clients navigate some of the most complex business and personal events of their life, and I take that responsibility seriously,” he says. No matter what their goals are for their future, Eric and his team help business owners “Build their Bridge to Monetization”, taking great care to ensure that his clients’ plans are designed with their best interests in mind.

https://sixmonthsandaday.com/

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