State tax collectors in New York, in particular, are using artificial intelligence to make up for the reduction in the number of auditors and have stepped up audits of high-income earners. CNBC reports: The New York State Department of Taxation reported 771,000 audits in 2022, the latest year available, a 56% increase from the previous year, according to the state Department of Taxation and Finance. At the same time, the number of New York state auditors has declined by 5% to less than 200 due to tight budgets. So how is New York auditing more people with fewer auditors? Artificial intelligence.
“States are becoming very sophisticated in using AI to determine the best audit candidates,” said Mark Klein, partner and chairman emeritus at Hodgson Russ LLP. “So what does that mean? When you're looking for revenue, it's not about the person who makes $10,000 a year, it's the person who makes $10 million a year.” He said he was sending a letter. “It’s like a fishing expedition,” he said.
Most of the letters and calls focused on two main areas: change of tax residence and remote work. During the coronavirus pandemic, many wealthy people have moved from high-tax states like California, New York, New Jersey and Connecticut to lower-tax states like Florida and Texas. High-income earners who took their taxes with them are now being challenged by states that say their moves were not permanent or legal. Klein said state tax auditors and AI programs are looking at cell phone records to see where taxpayers spend the most time and most of their lives. “New York is very aggressive,” he said.