State Tax Authorities Employ Artificial Intelligence to Pursue High-Income Taxpayers

The attention of rich people is found on the IRS, state tax collectors are getting tougher too, checking high earners more closely, according to tax experts.

In New York, they did 771,000 audits in 2022 (the latest data), up 56% from the year before, according to the state’s tax department. But the number of auditors went down by 5% to under 200 because of tight budgets.

So how are they doing more audits with fewer people? They’re using Artificial Intelligence (AI).

New York’s audits surge 56%, leveraging AI to compensate for reduced auditors due to budget constraints. (Credits: iStock)

“States are getting smart using AI to find the best people to audit,” said Mark Klein from Hodgson Russ LLP. “And guess what? When they want money, they’re not going after someone making $10,000 a year. It’s the ones making $10 million,” reported CNBC.

Klein says the state is sending out lots of AI-generated letters to find money.

“It’s like fishing,” he said.

Remote work and tax residency changes trigger aggressive audits, focusing on affluent individuals’ financial moves. (Credits: Cpa)

Most of the letters and calls are about two main things: changing where you pay taxes and working from home. During Covid, many rich people moved from high-tax states like California, New York, New Jersey, and Connecticut to low-tax states like Florida or Texas.

Now, the states they left say they didn’t move for good.

Klein says state tax people and AI are checking cellphone records to see where people spend most of their time.

“New York is being really tough,” he said.

States like New York employ “convenience rules,” challenging tax obligations of remote workers residing elsewhere. (Credits: North Country Public Radio)

On working from home, states like New York have “convenience rules.” They say if you work for a New York company from their New York office, you have to pay New York taxes, even if you live and work in Colorado.

Many rich people in New York City who moved kept their apartments with most of their stuff. State tax people are saying since they didn’t move all their things, they didn’t move.

“The state says, ‘Well, you didn’t move since all your TV and all your stuff is still in New York,'” Klein said. “They don’t get it, rich people can buy more stuff for the Florida home. They can buy another TV.”

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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