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Enforcement of nonresident income tax on the rise

In most cases individuals who run into tax issues with the Internal Revenue Service do not get to that place on purpose. Instead inaccuracies in a tax return are the result of a misunderstanding of how something in the tax system works. A situation where a lot of confusion exists concerns nonresident income taxes.

This issue could arise in situations where someone who resides in one state spends time working in another. That person would file tax returns in both states. One as a resident and the other as a nonresident, likely with credit for the taxes being paid to the state of non-residency being credited by the state of residency. Professional athletes are one example of the many people this may impact though travel, for work, and the rise of telecommuting is opening the issue to business professionals as well.

Employers are also impacted. This is in part due to the difficulty an employer might have in determining how much tax should be withheld in each state.

This issue does not appear to be going away. In fact, as of late, there has been an increase in the enforcement of nonresident income taxes. In the state of California, the California Franchise Tax Board is responsible for these matters. Those who are the subject of a residency audit will receive a notice from the FTB.

As is the case with any notice of tax investigation or audit, it is important to be proactive. Consulting an attorney who works in the field of income tax is usually the best way to accomplish this.

Source: Forbes, “Nonresident Income Taxes -- Not Just For Professional Athletes,” Cara Griffith, Dec. 1, 2014

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