State tax officials use artificial intelligence to track down wealthy taxpayers | Wilnesh News

While the Internal Revenue Service makes headlines for cracking down on the wealthy, state tax agencies have become more aggressive in auditing high earners, tax attorneys and accountants say.

The New York State Department of Taxation reported 771,000 audits in 2022, the latest year available, a 56% increase from the previous year, according to the New York State Department of Taxation and Finance. At the same time, the number of auditors in New York fell by 5% to less than 200 due to budget constraints.

So how does New York audit more people with fewer auditors? AI.

“Countries are increasingly using artificial intelligence to identify the best audit candidates,” said Mark Klein, partner and chairman emeritus of Hodgson Russ LLP. “Guess what? When you look for income, it’s not going to be a $10,000 annual salary. Someone with an annual salary of $10 million.”

Klein said the state is sending hundreds of thousands of AI-generated letters in an effort to generate revenue.

“It’s like a fishing expedition,” he said.

Most letters and phone calls focus on two main areas: changes in tax residence and remote work. During the coronavirus pandemic, many wealthy people have moved from high-tax states like California, New York, New Jersey and Connecticut to low-tax states like Florida or Texas.

High-income earners who moved and took their tax dollars with them are now being challenged by states that claim the moves are not permanent or legal.

Kline said state tax auditors and artificial intelligence programs are examining cell phone records to understand where taxpayers spend most of their time and live most of their lives.

“New York is very radical,” he said.

When it comes to remote work, states like New York with so-called “accommodation rules” hold that if you are employed by a New York company and work in their New York office, you owe New York taxes—even if you live and work in Colorado. Work.

Many wealthy people in New York City who moved kept their apartments and most of their belongings. State tax authorities claim that because they didn’t move with all of their household items, they didn’t actually move for tax purposes.

“The state said, ‘Well, you didn’t really move because all your TVs and everything are still in New York,'” Klein said. “They don’t understand that rich people can buy more stuff for their homes in Florida. They can buy another TV.”