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As the coronavirus decimates New York’s budget – the virus hitting the state far harder than any other in the U.S. – experts are warning wealthy taxpayers that the Empire State is likely going to crack down on audits in an effort to recoup some of the revenue it is owed.
New York has always been “aggressive” when it comes to auditing individuals who claim to have moved to a new jurisdiction – and experts expected this year to be no different. However, it could be even more intense given the state’s fiscal situation.
“With expected revenue shortages I would think they’ll continue to use their audit enforcement efforts to make sure they’re collecting the right amount of revenue,” Timothy Noonan, state and local tax expert and partner at Hodgson Russ, told FOX Business.
The New York City Independent Budget Office estimates the Big Apple’s budget shortfall for fiscal 2020 and 2021 will come in at $9.7 billion, as the city sheds 475,000 jobs over the course of 12 months.
Piling onto revenue troubles is the fact that New York has also extended its tax-filing deadline until July 15, which means it will be waiting to collect from some taxpayers.
The state may turn to audits since it has one of the best systems in the country, Noonan said. It has also lost many residents to lower-tax, or income tax-free states, like Florida, throughout recent years – a trend that accelerated following the implementation of a $10,000 cap on state and local tax deductions.
And for people who changed their domicile in 2018 – as that cap went into effect – residency claims are coming up for audit, Noonan noted.
However, Geoffrey Weinstein, special counsel in the Tax, Trusts & Estates Department of Cole Schotz, told FOX Business, that – at least over the near-term – auditors are dealing with their own unique challenges.
“The residency auditors from New York State … are working remotely from home and are not able to utilize in-office resources that are necessary to complete existing audits or commence new audits,” Weinstein said.
And for the current year, taxpayers changing their residence from New York have an extended period of time to file their non-resident or part-year resident returns, Weinstein added.
But, like Noonan, Weinstein does believe New York will eventually ramp up its auditing efforts.
“I suspect that New York will ultimately decide to double down on what has historically been a very lucrative residency audit program and will be vigorously pursuing those taxpayers that it believes are skirting their fair share of New York State/City taxes by having a second home in a non- or low-tax jurisdiction,” Weinstein added.
The program has been particularly rewarding.
Between 2013 and 2017, New York State collected about $1 billion from residency audits, according to data from personal residency audit defense company Monaeo. During that timeframe, an average of about 3,000 non-residents were audited annually. Taxpayers are forced to cough up an average of $144,000 to New York as a result of residency audits.
And most people lost their cases – according to Monaeo 52 percent of people fail to convince auditors that they had moved.
As previously reported by FOX Business, concerns about the city’s tax revenues could be exacerbated further if more high-net-worth taxpayers decide to leave the city in the wake of the coronavirus outbreak. Experts have noted that frustrated taxpayers may choose to remain at their second homes or vacation homes instead of returning to densely populated areas of high-tax states, which have become a major source of concern amid efforts to mitigate the spread of the highly contagious virus.
Noonan said he has personally received multiple inquiries from clients about changing their domicile from New York to Florida during the coronavirus outbreak. The strategy is even more feasible for some taxpayers who may have gone to their vacation homes at the outset of the winter and have been unable to return – now racking up nearly enough days in Florida to make a case for a residency change.
Last year, New York Gov. Cuomo credited the SALT cap for contributing to a $2.3 billion budget deficit in the state as wealthy taxpayers left.
The Empire State lost $9.6 billion in 2018 alone as wealthy individuals and businesses moved out.