From family photos repurposed to reflect various occasions on social media to virtual assistants offering help whenever we call and make an appointment to see a doctor, artificial intelligence (AI) is taking the world by storm. Even the government is making use of this tool. We know that the Internal Revenue Service (IRS) is using AI tools to help increase efficiency of tax reviews – but it may come as a surprise that state taxing authorities may be even more aggressive in their use of this new tool.
State taxing authorities are using AI to find taxpayers who are failing to pay their income tax obligations. This is especially true in high income tax states like New York where the state taxing authority states it conducted over 770,000 audits in 2022 alone. This is a 56% increase from the previous year.
How are state taxing authorities using AI?
State taxing authorities can use AI to review massive amounts of data to root out taxpayers who may require a closer look. Recent reports show that the New York Department of Taxation and Finance has sent a large number of inquiry letters to taxpayers. These letters are focused on questions about residency changes and remote work status.
What is the New York Department of Taxation and Finance looking for?
When it comes down to it, they want your money. They want to establish that even though you claim to live in a different state, you still owe New York taxes. An investigation by state taxing authorities will dig into every area of your life to try to find evidence that you still consider New York home. This could include looking into whether you still own property in the state, what type of items you keep in the state, and even the location of the veterinarian you use for your family pet. Even if you clearly live in another state, they will argue you still owe taxes if your company is a New York company with a New York office.
Critics argue that the reliance on AI has led to too many inquiry letters without enough evidence to support an audit. This means innocent taxpayers could find themselves in the agency’s crosshairs.
What should I do if I get an inquiry letter?
The first step is to take the letter seriously. Review it carefully for any important deadlines and to get a better idea of the supposed issue. Next, reach out to legal counsel with experience in this area of law. The tax laws that guide these claims are complex and ever evolving, making experienced counsel an important step towards mitigating the impact of the allegations.
Even those who do not receive an inquiry letter are wise to take these developments as a reminder to review their tax saving strategies for compliance. Careful review can help address any concerns before they grow into a bigger problem.