It’s a cat-and-mouse chase between the elite of New York and the IRS! With the latest federal tax laws lowering the deduction limit on state and local income taxes in Florida, it has caught the attention of most wealthy New Yorkers, who wish to save big on taxes by moving to Florida or other lower-tax states.
However, with the influx of residency applications, the State Department has taken notice and is strictly monitoring the migration process. This has resulted in a tussle between New Yorkers trying to migrate to lower-tax states and the New York State Department of Taxation and Finance.
Even New Yorker governor Andrew Cuomo commented on the situation saying – “Tax the rich, tax the rich, tax the rich, We did. Now, God forbid, the rich leave.”
He blames wealth flight for the major revenue downfall in the months of December and January, which is said to have been around $2,30,000,000.
The State Department is now working to make sure that New Yorkers fleeing the city are not able to do so without a proper audit and tax bill.
Chances Of Audit
As per media reports, The New York State Department has collected around $1,000,000,000 in taxes after conducting around 3,000 “non-residency” audits from 2010-2017.
Most of the applicants lost their case after an audit was conducted and paid an average of $1,44,270 per audit.
With the new tax laws encouraging the wealthy to move away from New York, the State Department has revised the auditing criteria to make the migration process between two states process much more difficult. In addition to the traditional auditing process, the State Department is also combing through the smallest of details that might reveal any false reasons behind the “justified residency application.”
From tracking cellular records, social media posts to even your dental records – everything is duly checked and any form of discrepancy can lead to you being fined.
“If you are a high earner in New Yorker, your chances of getting audited over a residency application increases by a guaranteed 100%!” says Barry Horowitz, a partner at a leading accounting firm based in New York.
Most tax attorneys are working on multiple audit cases and it is only set to escalate with time, as more and more wealthy New Yorkers make their way out of New York.
Real or Fake?
There has been no official statement regarding the official audit strategies from the State Department’s side. However, if the designated spokesperson is to be believed, their entire focus is on ensuring the taxpayers are made to pay their fair share of taxes. They also have ensured that their non-resident audit program is being enforced efficiently and actively.
On the other hand, the lawyers representing the wealthy and elite New Yorkers claim that the State officials are going to great lengths to ensure that the taxpayers do not get their residency application for another city approved without paying the due taxes back in New York. This means that the State Officials are going above and beyond with their audit strategies to achieve their goal.
The stakes are high on both sides. The wealthy would rather not pay higher taxes while New York cannot afford to lose any more millionaires or billionaires. The top 1% earners pay more than an average of 46% of the state’s income taxes. This means that even a small portion of them moving away would adversely affect the state’s revenue.
Every New Yorker planning to migrate to a different city can be seen counting the number of days they spend in New York and Florida, to meet the criteria for being in compliance with the residency rules. This, however, has been a common enough practice among the New York and Palm Beach social circuit over the years.
Conventionally, a person who spends at least 183 days away from New York is not expected to pay State taxes.
This worked brilliantly for taxpayers for decades until very recently when the State started focusing on “domicile” instead of the number of days spent in the respective cities.
This means that taxpayers now need to prove that their permanent residence is in Florida (or any other state) and not in New York.
This proves to be a difficult and complicated process as many migratory taxpayers own four or five houses in different cities and don’t spend too much time in any particular place.
Home is where your dentist is!
The screening process for the proof of domicile has been expanded to include the most basic facts about an individual.
The audit process focuses on finding out whether a person has actually cut all their ties from New York and have their heart and soul in a different city. From their most prized artwork to their wedding albums – all need to be in a different city, the city of their “permanent residence.”
It is compulsory for a person to have a wealth manager in their city of residence along with a country club’s membership!
Another loophole the State officials are using to their benefit is to check whether the individual has a dentist based out of New York as it makes no sense for a person to have a dentist in a city which is not his/her domicile. Thus, if your dentist is still registered in New York, you’re in deep water! The only relief is that specialized treatment is still exempted.
Your Best Friend Matters!
No, the State Department has not mandated for your best friend forever (BFF) to live in the same city as you. But, your fluffy friends, are expected to stay in the city of your domicile. Hence, if the vet for your pets is registered in a different city, it proves to be a major red flag!
Some auditors are also known to check the refrigerators to ensure that the taxpayers no longer reside full-time in their pieds-a-terre in New York.
The state officials are employing state-of-the-art high tech tools to check the taxpayers’ claims. From retrieving their phone records to tracking their social media posts – no stone is being left unturned to ensure that the applications reflect the truth and nothing but the whole truth!
However, since it takes two to tango, the New York elite have come up with their own arsenal of countermeasures to deal with the State’s apparent intrusion of their privacy. Monaeo, a self-proclaimed “personal and audit defense system” has introduced an app and web interface which allows users to log in and track their days between states, so as to not exceed the number of days required for compliance with residency laws.
It’s All Subjective!
The legal definition of the term “domicile” is very subjective and, hence, the New York State Departement ends up winning most residency tax audit cases. This essentially means that it collects the state taxes from the taxpayers.
Often such audits are repeated over a number of years, thus ensuring absolute compliance with the residency laws on the taxpayers’ part.
However, since the ultimate goal of the wealthy is to avoid paying the Estate Tax, which is charged at a whopping rate of 16% on estates above $ 5.5 million, paying income taxes after multiple audits is preferable, if it means avoiding estate taxes.
Estate tax savings is the reason a residency application is also referred to as the “Golden Ticket” by most attorneys and taxpayers!
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