Magazine article Medical Economics

One Big, Happy Family

Magazine article Medical Economics

One Big, Happy Family

Article excerpt

If the IRS questions your return, don't think that your state tax man won't get wind of it. Uncle Sam generously furnishes his cousins, the states, with copious details from your federal tax return.

New Jersey, for example, gets the lowdown on its 4 million taxpayers from the IRS on magnetic tapes. "We routinely compare the data on the tapes with our information," says Dominic Vitale, of New Jersey's Division of Taxation. "We're not just responding to IRS notices of audits and collections."

Just what kind of information can a state dig up from these comparisons? You name it. Income discrepancy between your federal and state returns. Interest income you mentioned on your federal return but omitted on your state return. A sizable deduction that the IRS might question. The list goes on.

No slouch in the tax-comparison game, New Jersey collects $50 million-plus a year as a result of its dialog with the IRS. And New Jersey is not alone.

"State taxing authorities often act faster than the IRS when they receive IRS information," says Frederick W. Daily, a San Francisco tax attorney and author of "Stand Up to the IRS." By the time the IRS comes to collect, a taxpayer may have set up a state installment plan or lost property to a state tax collector, leaving little for Uncle Sam, Daily adds.

What does this mean for you? Forewarned is forearmed. Some points to keep in mind:

If you're audited by the IRS, your state automatically finds out.

If the IRS adjusts your tax bill, the state can do the same without conducting its own audit.

Most states automatically dun taxpayers based on IRS bills. So, if the IRS makes a mistake in the bill, the state probably will too.

If you contest an IRS audit in Tax Court, Daily advises, you should notify your state's income tax department to prevent a premature state-tax assessment. …

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