Thursday, March 22, 2012
The New Yorker, Tax Me if You Can: The Things Rich People Do to Avoid Paying Up, by James B. Stewart:
Relatively scant media attention has been paid to residency requirements, even though enormous revenue is at stake. Tax audits and hearings are ordinarily confidential, but several published opinions and related appeals reveal how some New Yorkers take advantage of the residency requirement. (New York City tax laws don’t apply to people who are deemed to be nonresidents, even if they own a residence in the city and work there. Nonresidents are allowed to spend no more than half a year—a hundred and eighty-three days—in New York City.) Many states have such requirements. Relatively few cities levy personal income taxes, but the largest ones that do, besides New York City, are Baltimore, Cleveland, Denver, Detroit, Philadelphia, Pittsburgh, Portland, San Francisco, and St. Louis. The problem is especially acute for cities like New York, which are geographically close to nearby lower-tax jurisdictions. People who want to avoid both New York State and New York City income taxes are permitted to own a residence and work in the city and the state but must maintain a primary residence outside the state. The residency loophole provides an obvious financial motive to lie. One prominent tax lawyer said that “cheating is rampant.” Discusses the residency-requirement cases of hedge-fund manager Julian Robertson, criminal-defense attorney Thomas Perry, and Martha Stewart.
(Hat Tip: Ann Murphy.)