Wealthy taxpayers are being targeted by AI-powered tax officials.

• The number of audits conducted by the tax department in New York increased by 56% in 2022, reaching a total of 771,000 audits, as stated by the Department of Taxation and Finance.
• Due to tight budgets, the number of auditors in New York decreased by 5% to under 200.
• The state is issuing hundreds of thousands of AI-generated letters in search of revenue, with a focus on remote work or tax residency changes.

While the IRS is receiving attention for tightening its enforcement on the wealthy, state tax authorities have intensified their audits of high-income individuals, as reported by tax professionals.

In 2022, the New York tax department conducted 771,000 audits, a 56% increase from the previous year, despite a 5% decline in the number of auditors to under 200 due to budget constraints.

How is New York auditing more people with fewer auditors? AI technology.

"Mark Klein, partner and chairman emeritus at Hodgson Russ LLP, stated that states are becoming increasingly advanced in using AI to identify the most suitable audit candidates. Interestingly, when it comes to generating revenue, it is not the individual earning $10,000 a year who will be the focus, but rather the person bringing in $10 million."

The state is reportedly issuing hundreds of thousands of AI-generated letters in search of funds.

"It's like a fishing expedition," he said.

During the Covid pandemic, many wealthy individuals relocated from high-tax states such as California, New York, New Jersey, and Connecticut to low-tax states like Florida and Texas. The majority of calls and letters received centered on two main topics: tax residency and remote work.

States are challenging high earners who moved and took their tax dollars with them, claiming that the moves were not permanent or legitimate.

State tax auditors and AI programs are analyzing cellphone records to determine where taxpayers spend the majority of their time and reside.

"New York is being very aggressive," he said.

Even if you reside and work in Colorado, New York companies and their offices in New York argue that employees owe taxes to the state of New York under "convenience rules."

State tax authorities in New York City are claiming that many wealthy individuals who moved didn't actually move for tax purposes because they kept their apartments with most of their belongings.

"The state argues, 'You haven't moved since your TV and belongings remain in New York,'" Klein countered. "But the wealthy can purchase additional items for their Florida home, including another TV."