KEY TAKEAWAYS
The Lockdown might draw scrutiny and trigger a state-level audit. For individuals who own a home and are unable to leave the higher-tax state face the risk of a residency audit.
The Lockdown Triggered Audit?
The lockdown related to COVID-19 have forced some individuals to remain in one location longer than they intended. This is especially true for those individuals who may have need to leave a particular state for tax reasons. Residency audits are becoming a greater tool for tax states to generate revenue and COVID-19 through individuals for a big loop.
The Lockdown might draw scrutiny and trigger a state-level audit. For individuals who own a home and are unable to leave the higher-tax state face the risk of a residency audit.
Residency Tax Audits
Residency audits can result in state taxation of a taxpayer’s worldwide income. It does not matter whether was generated from that state or not. States may find information on where you were living through the lockdown by analyzing credit card charges, home utility bills, social media postings, and at times even cell phone records. It is not enough to claim residence in another state. The burden is on the individual to prove that he or she was actually in the correct state and abiding by the residency audit laws.
Many individuals with sophisticated tax advisors are well informed, but the challenge is in the implementation. There are many implications to continuing to own residential real estate in the state individuals are leaving. This is s red flag for a residency audit.
Minnesota Residency
An individual is deemed a Minnesota resident if they spend more than 183 days in a year in the state. It’s still unclear whether additional days spent in Minnesota due to stay-at-home orders would provide an exception. There are certain exceptions to the threshold, but as of today, guidance has been scarce. Once an audit is triggered, the actual number of days spent in the state will be relevant.
It is a good idea to consult your tax advisor to discuss your details if you feel that you may have stayed in one location too long.