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State tax officials are using AI to go after wealthy payers

Apr 16, 2024 - cnbc.com
State tax collectors have increased their audits of high earners, with New York reporting a 56% rise in audits in 2022, despite a 5% decrease in auditors due to budget constraints. This has been made possible through the use of Artificial Intelligence (AI), which is being used to identify the best audit candidates. The state is sending out hundreds of thousands of AI-generated letters, particularly focusing on changes in tax residency and remote work.

During the Covid pandemic, many wealthy individuals moved from high-tax states like New York and California to low-tax states such as Florida and Texas. These moves are now being challenged by states claiming they weren't permanent or legitimate. Tax auditors and AI programs are examining cellphone records to determine where taxpayers spent most of their time. Additionally, states like New York argue that if you are employed by a New York company, you owe New York taxes, even if you live and work elsewhere.

Key takeaways:

  • State tax collectors have become more aggressive with audits of high earners, with New York reporting a 56% increase in audits in 2022.
  • Despite a decrease in the number of auditors, states are using Artificial Intelligence to determine the best audit candidates, focusing on high earners.
  • High earners who moved from high-tax states to low-tax states during Covid are being challenged by states who claim the moves weren't permanent or legitimate.
  • States like New York argue that if you are employed by a New York company, you owe New York taxes — even if you live and work in another state.
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