What Happens If I Filed Late?

This year, your federal income tax return was due on Tuesday, April 17. That’s because the usual deadline, April 15, fell on a Sunday, and a federal holiday, Emancipation Day, fell on April 16. If you didn’t file your return on time despite the extra two days, here’s what to expect. 

Interest and Penalties
When you file and pay your taxes late, the Internal Revenue Service (IRS) will charge you interest, compounded daily, on your unpaid tax. Interest accrues from the April 17 deadline until the date when you actually pay. The IRS’s annual interest rate on late payments is the federal short-term rate (currently 0%) plus 3%. The rate changes quarterly; taxpayers can find current rates at the IRS’s news release web page.

In addition to interest, you’ll be responsible for a late payment penalty of 0.5% plus a late filing penalty of 4.5%. Both penalties are charged on the amount of tax you owe for each month or partial month that you don’t pay your tax bill. The penalty maxes out at 47.5% – that’s 22.5% for filing late and 25% for paying late. The late filing penalty increases to 15% per month with a maximum of 75% for fraudulent failure to file.

The IRS will reduce or even eliminate the late filing and payment penalties if you can show “reasonable cause,” but the IRS may not interpret those words in the same way you would. Also, members of the armed forces who are currently serving in combat zones may qualify for an exception to the filing and payment deadlines. So will some taxpayers affected by recent natural disasters.

The good news is that you don’t have to worry about going to jail for filing or paying late or for making a mistake on your return. The IRS says it reserves criminal prosecution for “flagrant cases involving criminal violations of tax laws.”

Willful Neglect
If you don’t file a return, the IRS may prepare a return for you using the information it has about your income from W2s, 1099s and other forms it collects from third parties like your employer and financial institutions. An IRS-prepared return is unlikely to give you credit for all the deductions and exemptions you’re allowed, so an IRS-prepared return (also called a substitute return) is likely to result in your owing more tax than you were actually required to pay. If the IRS does file a substitute return, you’ll have the opportunity to correct it and receive the exemptions, credits and deductions you’re owed if you file your own return.

If you intentionally don’t pay your taxes or make any effort to pay them, the IRS can force you to pay them. It can levy your bank accounts, garnish your wages and/or seize your assets. It can also file liens against your assets, including your home. If you aren’t intentionally evading your tax liability but you can’t pay, your best bet is to file on time and work out a repayment plan with the IRS. Under such a plan, the IRS may lower your late payment penalty to 0.25% per month, and you won’t owe the late filing penalty of 4.5% per month.

What Is Considered on Time?
If you file your tax return electronically, your return transmission will have an electronic postmark. This electronic postmark determines whether you filed on time.

The IRS considers paper returns to be filed on time if they are “mailed in an envelope that is properly addressed, has enough postage and is postmarked by the due date.” If you use a private delivery service such as DHL, UPS or FedEx to send your tax return, the postmark date is considered to be “the date the private delivery service records in its database or marks on the mailing label.”

Tax Return Extensions
If you need more time to prepare your return, filing an automatic extension request is simple and straightforward. Filing form 4868 gives you an extra six months to prepare your return. Be aware that if you file an automatic extension, your filing deadline becomes October 15, not October 17. This extension does not, however, extend the amount of time you have to pay any tax you owe. 

If you need more time to pay and you owe $50,000 or less in combined taxes, penalties and interest, try using the IRS’s online payment agreement to automatically set up a payment plan. You can do this even before you receive any notices from the IRS. Another option is to request a payment agreement by filing form 9465-FS. If you’re having trouble paying your taxes because you lost your job or your self-employment income has declined by 25% or more, you might qualify for penalty relief and a six-month payment extension under the IRS’s Fresh Start program.

The Bottom Line
In the future, if you know you won’t be able to file your return on time, file an automatic extension using form 4868. You can do this online through the Free File link at IRS.gov, through a tax software program or through a professional R&G Brenner tax preparer. The form asks you to estimate your tax liability and pay what you think you will owe. Even if your estimate turns out to be incorrect, it could reduce any late payment penalties you might owe, and you won’t be subject to late filing penalties.

Source: Investopedia

If You Can't Pay IRS, Don't Panic

It’s one of the worst tax time scenarios: You discover while doing your taxes — or you just know without even doing them —that you owe taxes, and you don’t have the cash. What should you do?

You may be tempted to ignore the problem. Don’t do it. The worst thing you can do is put off filing your return because you’re afraid of the bill. The Internal Revenue Service (IRS) penalties for not filing are more punitive than the ones for not paying.

The failure-to-file penalty runs to 5.0 percent a month that your return is late, up to 25 percent, with a minimum penalty of $135. The failure-to-pay penalty is just a fraction of that, at 0.5 percent a month of the unpaid tax at April 17, and even that is cut in half for taxpayers who set up a formal installment plan with the IRS. Either way, you’ll also owe interest, currently at a modest 3.0 percent a year.

Consider the case of a taxpayer who owes $2,000 and won’t have the money until the end of June. If she files a return or an extension by April 17, the total penalties and interest due would be just $43…But if she puts off filing until June 30, and pays then, those penalties and interest would multiply to $314…The longer this taxpayer waits to file, the more those fees would balloon.

“That’s a lot of money for late filing,” says Allison Shipley, a partner at PricewaterhouseCoopers in Miami. “And, in my experience with clients who have had a difference with the IRS, they tend to be more lenient if you’ve always filed your returns on time.”

So the first step to consider if you’re not ready to file is the simplest: File for a six-month extension, using Form 4868. As long as you’ve paid 90 percent of the taxes you owe by April 17, you will not owe the late-payment penalty. You will, however, still owe interest on any unpaid taxes.

If you have the cash, but have run out of time to deal with the paperwork, you can send in an estimated amount to avoid some or all of that interest. Similarly, if you owe taxes, but can’t pay all that you owe, you could send in a partial payment to cut the interest and penalties due.

HARDSHIP BREAKS

The IRS does offer a few hardship breaks for cash-poor filers. The big one in effect this year is called Fresh Start, and lets those who were unemployed request a six-month extension to pay this year’s tax bill without being charged any penalties.

You would qualify if you did not have a job for 30 straight days in 2011 or in 2012 until April 17, or if you were self-employed and saw your income drop by at least 25 percent in 2011 due to the economy. You would file Form 1127, and automatically get until October 15 to pay. While you would get out of the penalties for six months, you would still owe interest.

Those who have survived a natural disaster or who are on active military duty may also qualify for penalty-free extensions for varying amounts of time.

FINDING THE CASH

If you are not in one of these special categories, and you owe more than you have, you may want to weigh your various options for finding the money you need. You could: (1) put your tax bill on your credit card; (2) Use a home-equity line of credit; (3) just pay late and swallow the penalties and interest; or (4) ask the IRS to accept a formal installment agreement.

While the standard advice is to pay the IRS first, that may not make sense this year. IRS rates are so low, compared to credit card rates, that it may make more sense to deal with the tax agency directly. A tax installment payment plan, even with penalties, costs around 6.0 percent a year.

“This is an interesting time for strategy because of those low rates,” says Larry McKoy, a certified public accountant at Dickson Hughes Goodman in Glen Allen, Virginia.

Not only is the average rate on credit cards currently 15 percent, according to CreditCard.com, but when you pay taxes on a credit card you also have to pay an added “convenience fee” that could add as much as 2.0 percent to your transaction. That’s because the IRS is prohibited from paying the interchange fees most retailers pay on card transactions.

If you have access to a home equity line of credit, it may be worth tapping that because the rate is likely lower and you do not have to worry about those taxes hanging over your head, says Gregg Wind, a certified public account with Wind & Stern in Los Angeles.

INSTALLMENT PLAN COMPEXITITES

There’s no hard-and-fast rule for when to do an installment plan, but the higher the amount [you] owe and the longer it will take you to pay it, the better off you are to request one rather than simply paying late. An installment plan will put your payments on a monthly schedule and cut your penalty on unpaid taxes in half, to 0.25 percent.

To set one up, you will file Form 9465 and pay an application fee of between $43 and $105, depending on your income level and whether you are willing to pay through automatic deductions from your checking account or paycheck…

The IRS can reject an installment agreement, but usually does not, unless filers owe an astronomical sum or request a overly lengthy payment period. In fact, acceptance is guaranteed if you owe less than $10,000, request a payment period of three years or less, you have paid all your taxes for the last five years and the “the IRS determines that you cannot pay the tax owed in full when it is due,” according to the IRS’s rules on installment agreements.

For larger tax liabilities, the process gets more complex, though there is a streamlined application process for those who owe no more than $50,000. Taxpayers who owe larger amounts must file Form 9465-FS.

“If it’s under $50,000 you are not going to be asked to file a lot of financial information,” says Wind. “A lot of people are overwhelmed by the thought of compiling a lot of financial information, but they don’t need to be.”

Better to fill out a few extra forms than get stuck paying 5 percent a month, every month, for not filing them.

If you need assistance or advice setting up a payment plan or filing any of the tax forms above, contact an R&G Brenner progressional today.

Source: Reuters

The Average DIY Taxpayer Lost b/w $347-$841

Fellow tax professional Dave Ramsey recently preformed a survey of 2000 taxpayers; about half of who prepared their own returns, and the other half who had them prepared professionally. This is what he found:

When you use software to file your income taxes, there’s a moment, an instant just before the point of no return, when you silently wonder—what if?

What if I didn’t enter the numbers correctly?
What if I miscalculated?
What if I missed a deduction or credit?
What if I claimed a deduction or credit I’m not eligible for?

All that uncertainty is one of the downsides of self-filing. Other disadvantages can hit you where it hurts most—your wallet.

Reduced Refund

Since most folks aren’t tax experts, it’s easy for them to miss deductions or credits when they self-file. They are also more likely to take the standard deduction instead of itemizing their expenses. Either of these mistakes could lower their refund.

Take a look at these numbers from our recent survey of 2,000 of Dave’s Facebook fans.

• Self-filers got an average refund of just less than $1,500.
• But folks who had their returns professionally prepared had an average refund of nearly $1,800!
• Procrastinating self-filers, those who filed their returns during April, got an average refund of more than $1,800, while those who used a pro got an average $2,600 refund!

Those folks potentially lost hundreds of dollars by trying to save a buck and doing their taxes themselves. It doesn’t seem like such a smart choice now, does it?

Magnified Mistakes

The cost of DIY tax prep isn’t limited to the size of your refund. Your mistakes can also cost you in the form of penalties and interest.

The IRS checks every return for a signature (manual or electronic) and math errors and cross-checks all sources of income that are reported via W2s, 1099s, etc. So if you fail to report any income or enter the wrong number in the wrong column, the IRS will call you on it.

And if it turns out you owe taxes, by the time the IRS notifies you, penalties and interest will have already inflated that amount. You’ll be charged a penalty for paying late and you’ll be charged interest from the date the tax was due until the date of payment, and it compounds daily.

By working with a tax professional, you’ll not only have confidence that your taxes will be done right the first time, you’ll also have peace of mind that your tax professional will be there to help you if the IRS has questions about your return. File with [consumer] tax software, and you’re on your own if the IRS comes knocking…

The evidence is clear; trying to save pennies with DIY tax software can cost you thousands of dollars in unclaimed refunds, penalties and/or interest.  And one of the most important losses is your time.  Remember, even if you are using a “free” DIY tax service, you still have to take the time to for research, record keeping, learning the program and double checking all the figures.   It obvious that receiving a larger well deserved refund is more valuable than smaller refund.   However, the old adage that “time is more valuable than money” couldn’t be more true especially when the IRS reports that it can cost a taxpayer up to 32 hours simply to prepare an annual tax return!

So, save yourself time, money & the stress of preparing your income tax return yourself and contact an R&G Brenner tax professional today.  We offer a free consultation for your current year tax returns as well as your 3 previous years returns.  Plus, you can qualify for many promotions that can save you money & even make you money.

Source: daveramsey.com

The New York State Department of Taxation wants all tax returns filed electronically this year.   In years past, they have assessed penalties to Paid Income Tax Preparers as an “incentive” to file returns they prepare electronically.  This year, they have gone one step further. New York is now assessing penalties directly to the tax payer as well as the tax preparer:

New penalties apply for failure to e-file. If a preparer doesn’t e-file a required return, the Tax Department may impose a penalty on the preparer and the taxpayer.

Client penalties	Amount
Failure to e-file	$25 penalty per tax document for individual taxpayers $50 penalty per tax document for all other taxpayers
Failure to e-pay	$25 penalty per payment for individual taxpayers $50 penalty per payment for all other taxpayers

In addition:

• A paper document is subject to the penalty imposed for that tax type for failure to file a return or report. (This doesn’t apply to income tax returns.)
• Any overpayment claimed on a paper tax document that was required to be electronically filed will not be eligible to receive interest until the document is filed electronically

Please contact an R&G Brenner representative if you are accustomed to filing your tax returns without electronic filing.  We offer free electronic filing and many other money saving promotions.

Source: NY State Department of Taxation

The old adage that “you get what you pay for” is compounded when applied to free income tax preparation…In fact, a free tax return may cost taxpayers more than they bargained for.  The title of a report filed by the Treasury Inspector General for Tax Administration (TIGTA) sums it up frankly: Accuracy of Tax Returns, the Quality Assurance Processes, and Security of Taxpayer Information Remain Problems for the Volunteer Program.

The TIGTA audits of the Volunteer Income Tax Assistance (VITA) sites–a program sponsored by the IRS which caters to low-income tax payers, the elderly & the disabled–found that their accuracy rate was far below 50%.  Of the 36 tax returns that undercover TIGTA auditors had prepared at VITA sites, only 14 were considered to be filed correctly. That is a whopping 61% inaccuracy rate.  What is particularly alarming is the deliberate “modified facts” that some volunteers engaged in to inflate potential refunds, as well as the absence of a thorough vetting process to weed-out potentially unscrupulous volunteers:

The accuracy rates for tax returns prepared at Volunteer Program sites decreased sharply from the 2010 Filing Season. Of the 36 tax returns prepared for TIGTA auditors, only 14 (39 percent) were prepared correctly. Tax returns were prepared incorrectly because volunteers did not follow all guidelines. For example, volunteers did not always use the intake sheets correctly. For three (14 percent) of the 22 incorrectly prepared tax returns, volunteers knowingly modified the facts the auditors presented…[Furthermore] Current steps and processes do not ensure the integrity of volunteers, even though the volunteers have access to taxpayers’ Personally Identifiable Information, such as Social Security Numbers, driver licenses, and home addresses.

TIGTA Inspector General J. Russell George had the following to say:

The findings of this review are very troubling…The Volunteer Program plays an important role in helping many taxpayers, notably those who have low incomes, and the elderly, disabled, and limited-English proficient, participate in the tax system. Like all taxpayers, they deserve to have their tax returns prepared accurately. I am pleased that the IRS has agreed to our recommendations to address these problems.

Some of the important TGITA recommendations agreed to by the VITA program are as follows:

• Include anonymous shopping visits as part of the quality review process
• Improve controls over Volunteer Standards of Conduct (Form 13615)
• Develop a process to ensure all volunteers are following the guidance focusing on the integrity of the Volunteer Program and the security of taxpayer information
• Review the IRS fraud hotline procedures to determine best practices

R&G Brenner recognizes the valuable service that the thousands of VITA volunteers provide to millions of taxpayers across the country. However, it is apparent that the quality of these returns leaves much to be desired considering the continually changing & vastly complex tax code.  When you pair this with the fact that most VITA volunteers receive little or no compensation, it is not hard to see why so many returns are being prepared incorrectly, and that an environment for potential identity theft is being sewn.

For many, a tax return is the most important financial document they will file each year. Therefore, it is of the utmost importance that your tax preparer have a vested interest in the accuracy of your filings.  Here at R&G Brenner, we offer many promotions including a $50 introductory fee for new clients that qualify for tax assistance.  We can’t compete with “free”, but we can guarantee that our tax professionals, enrolled agents & CPA’s will have an attentive vested interest in preparing your return accurately, and getting you back every penny you deserve.  Remember, it’s not “free” if you are forced to spend considerable time retriving old tax documents, and money on penalties and interest correcting mistakes.  Contact R&G Brenner for more information, and to have your tax return reviewed for accuracy free of charge.

Sources: TIGTA & WebCPA

Thanks to the efforts of Mr. Charles Freret, the following fax was sent by the Vice President of TurboTax.  If you are a taxpayer that has used Turbotax and filed with a 1099R for tax years 2007, 2008 or 2009, you should contact Mr. Meighan via fax at 858-408-2714

Last week, I did a blog post about Mr. Charles Freret who went on a one-man crusade to expose a flaw in the popular do-it-yourself tax program: Intuit’s TurboTax.  You can read that article & post here.   After Mr. Freret read the aforementioned post, he contacted R&G Brenner and agreed to sit down for an exclusive interview.  Mr. Freret’s story of persistence to discover the truth is incredible.  What he uncovered along his journey is TurboTax is miscalculating tax returns on a large scale.  And upon further investigation, the TurboTax flaw was present not only in the current tax year program, but tax years 2008 & 2007 as well.  Coverups, Lies & Government disinterest all will eventually lead to more money out of TurboTax users pockets.  Here is his story:

R&G Brenner (RGB): How long have you been preparing your own taxes?

Charles Freret (CF):…over 40 years

RGB: So you’re pretty well versed in preparing your own taxes, and you have been doing them by hand!?

CF: Yes

RGB: Was 2010 the first year you used TurboTax?

CF: No, I used it once before in 2004

RGB: But this tax year, you discovered a problem with the calculation of your taxes using TurboTax?

CF: That’s correct, and the only reason I used it this year…was because I had a free [e-file] submission

RGB: In order to get your refund a little faster?

CF: Yes

RGB: Ok…and you discovered that there was a problem with TurboTax increasing your refund.

CF: Yes, by [giving] a deduction twice.

Continue reading »

Well tax day is finally here!  It’s been a rough year for all american taxpayers due to the economic crises; including the employees and associates of R&G Brenner.  Therefore I would like to thank all R&G Brenner associates for their hard work, 12 hour work days and tireless efforts.  Without these experienced professionals, as well as all of our valued and loyal clients, R&G Brenner would not and could not be what it is today.  Thank you all.

Here are some last minute tips:

• If you owe taxes and are mailing in your returns, be sure the envelopes are postmarked by 11:59pm on April 15th.  If they are not, you will be subject to late filing penalties and interest
• If you owe taxes and need to file an extension because you are not ready to submit your returns, we can help you.  Remember, an extension does not preclude you from paying your taxes.  They must be sent along with the extension before 4/15
• Be sure to put primary & secondary (if applicable) Social Security numbers on any checks sent as payments
• Keep all personal return back up documentation of your deductions for a minimum of 7 years.  Keep all documentation for Business Tax Returns FOREVER.
• If you have not filed a 2006 tax return, or plan on filing an amended 2006 tax return, they also must be submitted before 4/15.  Any 2006 return submitted after this date will not be accepted, and all potential refunds will be forfeited
• If you are due a refund, no worries!  You have three years to file.  So don’t kill yourself trying to get your taxes filed by the 4/15 deadline
• If you filed your taxes yourself R&G Brenner is offering a free review of your self-prepared tax returns.  If your return can be amended to your benefit, we will reduce your quoted fee by the retail amount you spent on your software.  This is especially pertinent for TurboTax filers as it has come to light that their program is miscalculating tax returns.

If you have any other questions, please do not hesitate to contact us.

Thanks again and see you next year!

Benjamin K. Brenner, PRESIDENT

TurboTax–the leading do-it-yourself tax software estimated to be used by 40 million taxpayers in 2010–is miscalculating tax returns:

A flaw in the most recent version of TurboTax, the nation’s most popular tax-preparation software, may have caused thousands of retired federal employees to overstate their medical deductions and unwittingly underpay the Internal Revenue Service, according to federal officials.

Overstating your deductions–knowingly or unknowingly–can lead to large penalties and interest since it could take years before the IRS contacts the taxpayer alerting them of an adjustment.

Officials for Intuit, the Mountain View, Calif., company that produces the program, were alerted to the problem last week, after a retired federal worker from Virginia noticed that TurboTax had automatically double-counted his medical insurance premiums as deductions.

When questioned about the problem by a reporter last week, Intuit said it had begun working with the I.R.S. to revise its computer-prompted instructions on TurboTax and prevent such errors in the future.

The program has nonetheless been troubled by occasional glitches and security breeches, notably in 2007, when so many last-minute filers overwhelmed the TurboTax servers that many returns failed to make it to the I.R.S. by the filing deadline.

Both I.R.S. and Intuit officials were scrambling to gauge the scope of the problem involving the federal retirees, but said only a limited number of returns appeared to be involved.

As stated in a previous post here, there are many risks associated with preparing ones own taxes; particularly the prospect of miscalculations due to a failure to apply updates which are released frequently throughout the tax season.  This is not the first time TurboTax has had a calculation error in it’s software, and it won’t be the last. What is disturbing is the amount of persistence the discovering taxpayer had to exert for Intuit & the IRS to acknowledge and correct the problem:

The man who reported the problem, Charlie Freret of Chantilly, Va., stumbled across the error while using a free version of TurboTax to e-file a tax return he had already prepared on paper. Mr. Freret, who retired as a lawyer in the Department of Veterans’ Affairs in 2004, said he had hoped that e-filing would allow him to get his refund more quickly. But the tax return calculated by TurboTax promised him a refund $600 larger than he was entitled to because it automatically added his medical insurance premiums to his deductions — after the computer-generated prompt had instructed him to enter his health care expenses manually.

Mr. Freret reported the problem to Intuit officials and, when the company acknowledged the error but did not issue a broad warning about how to avoid it, decided to report it to the I.R.S. and the Treasury Department. But auditors at the Treasury Inspector General for Tax Administration were unable to duplicate the error when they tested versions of the software, so Mr. Freret contacted members of the news media, including The New York Times.

So it was not until Mr. Freret contacted the media that corrective action was taken by either Intuit or the IRS! Something is not right here.  The IRS & Intuit contends that this calculation error is limited to a small subsection of federal employees, however, judging from the “scrambling” going on, and launched investigations, I wouldn’t be so sure:

J. Russell George, the Treasury’s inspector general for tax administration, said his office was planning to begin a thorough review of TurboTax and similar software, which has become far more widely used than when last audited in 2005.

“This is especially troubling given the fiscal constraints that the nation finds itself in because this problem could allow people to pay less money than they owe,” Mr. George said. “It is truly incumbent upon us to let taxpayers have confidence that the software they use to prepare their returns will be accurate.”

How is it that the last time that the nations largest tax program was audited was 5 years ago?!  That doesn’t seem right.  Bill Singer of Stark & Stark law firm was recently interviewed by Forbes and had this to say:

…what I would say is that if there’s a winner in this mess and, you know, keep in mind that I think the tax code is something like 70,000 pages at this point, I think the winner is clearly TurboTax. I don’t know whether long term that’s a wonderful development because I suspect a lot of folks are going to make mistakes in doing their own taxes. But clearly there’s a trend in everything in life today toward going online and using a computer. And I don’t think that that necessarily bodes well for H&R Block or Jackson Hewitt. So that’s another issue.

If you would like a free review of your self-prepared tax return (TurboTax or other brands), contact us today. R&G Brenner will ascertain if your calculations are correct and check for deductions that the software missed and you deserve.  If your tax return was calculated incorrectly, contact the company and inquire how they intend to compensate you.  Most reputable companies will reimburse any potential penalties assessed due to a calculation error on their part.

Sources: NY Times & Forbes

The States are getting desperate.   New York & Connecticut (among others) are gearing up to enforce a tax law usually reserved for the rich and famous.  Athletes, for example, make millions upon millions of dollars and their travel schedules are well known. Therefore, when they travel to another state to play, that particular state taxes a prorated share of their annual income.  Due to the financial crisis and state budgets crises, now the Joe-the-Plumbers of the world can expect to be taxed just like the Joe Mauers of the world (who just signed the richest contract for a catcher in MLB history).

Anyone who crosses a state border for work — to make a sales call, say, or meet with a client or do a road show on Wall Street — probably owes income taxes in that state.

If you live in Boston but spend one out of 250 workdays this year in New York, you owe New York income taxes on 1/250th of your salary. And vice versa if you are a New Yorker visiting Boston — or Anywheresville, for that matter — for business.

Such laws have been on the books for decades, and they vary by state. But it is only recently, accountants and tax lawyers say, that many states appear to have picked up enforcement, expanding it beyond the wealthiest celebrities and athletes.

“The states are all hungry for revenue,” said Alan Clavette, an accountant in Newtown, Conn. “We are certainly seeing states like New York and Connecticut looking more and more for executives and everyday taxpayers who may be spending time across the border.”

Former NY State tax commissioner James W. Wetzler said aside from imposing this tax on the rich, it was largely a “don’t ask don’t tell” type of deal.  The amount of time and recourses required to go after the lawyers or traveling salesmen simply did not warrant the expense.  However, governing bodies now have access to tax data they never had before and this all appears to be changing:

But now states have greater access to data warehouses that help them better track taxes owed. Real estate transactions, federal data from the Internal Revenue Service, commercial license plates, traffic tickets, bids for government construction projects — all this information, newly digitized and dumped into a computer system, can help states find tax scofflaws.

“We’re sort of getting into ‘1984’ land here,” said Kenneth T. Zemsky, an accountant and partner at Ernst & Young. “A lot of the reason they went after athletes and entertainers is that they couldn’t find the other people. Now they’re able to get those people, too.”

Failure to file in accordance with this tax law can have serious consequences.  Most states take multiple years to investigate and come to final determinations on returns that they audit. Depending on the amount they claim you owe, it could lead to garnishment of wages and/or future refunds.  Also,  penalties and interest continue to accrue for the entire period of non-payment. Depending on the state, the penalties and interest could be greater than the amount of taxes.

It appears that the states best enforcement tactic may be requiring employers to withhold additional state taxes from employee’s paychecks:

State auditors may not be able to monitor every border-crossing, but with corporate payroll managers as their enforcers, they don’t need to…In some cases auditors check to see if, say, an employee who was reimbursed for airfare to California also had California income taxes withheld from his paycheck. If not, the company can be fined.

The bigger burden associated with distributing your taxes to more state governments is the administrative effort it requires, for both employee and employer. Many states require filing a return for a single day’s work. For peripatetic workers like salesmen or consultants, filing a pile of additional state tax returns can become prohibitively expensive, not to mention frustrating.

In other words, this all boils down to enforcement.  Even with all the new technology at the state’s fingertips, they may not have enough to gain with a full court press on this issue.  The future will surely reveal which states are the most aggressive.  The most aggressive states stand the most to gain, and reciprocally, they are the states that are more desperate to close their budget gaps.  The state of New York appears to be desperate, and thus we would not recommend that NY taxpayers take a “wait-and-see” approach.  If recent history is any guide, NY State will tax first and ask questions later.  If you think you will be affected by the enforcement of this tax law, please contact us.  An experienced R&G Brenner tax consultant is ready to guide and advise you through this process.

Source: NY Times