Wealthy Clients Leaving High-Tax States May Face Strict Residency Audits

High-tax states such as New York and New Jersey have been witnesses to many high-wealth citizens moving out of the state and residing in lower tax states such as Florida, Arizona, and Texas. Anupam Singhal, co-founder of New York-based Monaeo, which offers an app to help defend against residency audits, estimates that “if you are wealthy and move out of state, the chance of being targeted for a state-residency audit is 100%.”

Many of these states that are subject to the wealthy exodus are becoming more aggressive in their residency audits. New York conducts thousands of them each year and, in the process, recouped about $1 billion in taxes between 2010 and 2017 claims Singhal. The chances are higher that a higher-income person will be audited if they have “[b]usiness ties to the former state, amount of time spent in the former state, moving shortly before selling a business or a large amount of stock [and] maintaining a large personal residence in the former state” according to Robert Seltzer, a CPA at Seltzer Business Management in Los Angeles.

It is also on the taxpayer to prove that their residency changed to the other state. Clients can help their cause if they take actions that show a commitment to their new state, such as registering to vote, getting involved in local politics or charities and establishing new banking and investment relationships, says Geoff Christian, managing director at CBIZ MHM in Greenville, South Carolina. Lifestyle changes may also show a different residency, such as where they take their pet to the veterinarian, where their country club membership is, where they spend their anniversary and even the quantity and type of food in their refrigerators,” Singhal said.

See Jeff Stimpson, Wealthy Clients Leaving High-Tax States May Face Strict Residency Audits, Financial Advisor, June 17, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.