AZ res and NYS non-res

[schirallicpa]

But - client maintains house in NY and has a rental property in NY.  The CPA in AZ has never allocated any income to NY.  They've been doing this for years.  And no income allocated to NY!  How does that not get a love letter back from the state?

[Slippery Pencil]

NY doesn't know about it.

[joanmcq]

They'll know about it when the properties are sold!

[BulldogTom]

6 hours ago, schirallicpa said:

But - client maintains house in NY and has a rental property in NY.  The CPA in AZ has never allocated any income to NY.  They've been doing this for years.  And no income allocated to NY!  How does that not get a love letter back from the state?

If I understand it correctly, the new Cir 230 guidance will require you to advise the client to file amended returns or you must decline the engagement.   The new rules are going to be tricky in circumstances like this.   I can't believe I am going to say this, but I am really going to need to look at a good Ethics course this summer if the new regs are finalized.

Tom
Longview, TX

[mcb39]

This year I had to fire a longtime client who was a Wisconsin resident who worked in several different states but maintained rentals and residency in WI.  Last year, he purchased rentals in TX (no income tax) and changed residency to TX.  A really nice young man and good client but always so hard to gather information from.  I knew this would be too much of a challenge and time consumer so advised him to find an accountant in TX.  So far I have had no  requests for assistance, depreciation schedules or anything so am relieved that I made this decision for him.  He still calls and texts me as a friend, but taxes are not discussed and I wonder if he is in the same situation as is discussed above.  I believe and hope that I made the ethical decision.

[Sara EA]

Some states are really aggressive in residency audits, especially if the person maintains a residence in the nonresident state.  If state budgets start getting pressured by all the cuts being made in Washington they may all start looking harder.  Your TX/WI friend may just have to produce every bank and credit card statement, utility bill, gas receipt, doctor visit history, etc to prove where he is spending most of his time.  Residency audits are nasty.

I agree that NY just doesn't know about the rental income.  You have to include the income now, but the depreciation schedule will be a dead giveaway.  "Date placed in service" will not coincide with the current tax year.  The client should hire a tax attorney who will calculate the amount of unpaid taxes and make an anonymous offer to the state.  Basically they approach the state saying that some unnamed individual may have $X in unreported income, owing $Y in taxes, interest and penalties.  The person may be willing to pay $Z to settle the debt in full (Z < Y).  The state may negotiate a bit but often accepts because if they don't, they have no idea who the person is and will likely get nothing.

[mcb39]

He is out of my hands now.  Since he is a Construction Engineer, he spends his time in several states.  His home base, though, is now Texas.  (No State Tax)  He has always claimed his WI rental income and maintained WI residency until this past year.  Now that he purchased rentals in TX, I wanted out and advised him to find someone in TX to handle it.  In the past few years, he has had W2 income from La, Colorado, NM and other states.  I always filed him WI and he was current on his WI taxes.  I just couldn't deal with him anymore to the detriment of my other clients.

 

[schirallicpa]

They are on extension........