Is the IRS Telling Tax Professionals the Truth?

July 7th, 2021

Yesterday, a fellow tax professional posted on Twitter:

Ogden currently has 70 tractor trailers of unopened mail. – per IRS agent trying to explain why a POA from 2019 still hasn’t cleared yet.

Yet if you read the IRS Operations page on the current status of IRS operations you get a different picture:

[On Individual Tax Returns] The IRS is opening mail within normal timeframes and all returns received prior to 2021 have been processed if the return had no errors or did not require further review. As of June 25, 2021, we had 16.7 million unprocessed individual returns in the pipeline…

Status of Processing Form 941, Employer’s Quarterly Federal Tax Return: The IRS is now opening mail within normal timeframes. The IRS has also made significant progress in processing Forms 941. As of July 2, 2021, we had about 5,000 Forms 941 received prior to 2021 in the processing pipeline. Including current year returns, as of July 2, 2021, we had 1.6 million unprocessed 941s in the pipeline.

An individual tractor trailer has a volume of 3,489 cubic feet; 70 of these would have a volume of 244,230 cubic feet.  You could fit 1,826,967 gallons of fluid in 70 tractor trailers.  That’s a lot of mail.  Sure, Ogden does now receive all paper-filed individual returns for the western United States, but what the IRS is saying doesn’t make sense if the IRS is telling us the truth.

Ogden is where almost all specialty returns are filed (Forms 3520, 3520-A, 8804/8805/8813, etc.), and those are not mentioned in the IRS pronouncement.  Yes, that will add to the unprocessed paper (these returns must all be paper-filed), but in volume it’s not large.  Paper-filed business returns (corporations, S-Corporations, and partnerships) also mainly go to Ogden; however, most such returns are electronically filed so in volume this is likely not a big factor.

My suspicion is that a large amount of the 70 trailers are filled with returns waiting to be sent to federal warehouses.  Because of Covid, most federal employees are working from home.  Paper-filed returns are generally stored for years in federal warehouses.  The IRS cannot send those returns from Ogden to various warehouses because the warehouses are closed.  Thus, they fill tractor trailers waiting for them to reopen.  These do not represent unprocessed paperwork; they are filled with processed paperwork that must be stored.  My guess is that the telephone representative the tax professional spoke with saw the trailers, knew that some are filled with unprocessed mail, and assumed the rest were too.  I’m reaching out to my IRS Stakeholder Liaison on this issue.

Still, if you’re dealing with the IRS patience is a necessity.  We’re telling clients the following timelines (these are averages) when dealing with the IRS:

  • Refunds Where You Claim the Recovery Rebate Payment (as a tax credit): 4 months
  • Processing Time for Paper-Filed Return: 10 months
  • Processing Time for Paper-Filed Amended Return: 12 months
  • Processing Time for Electronically Filed Amended Return: 11 months
  • Response Time on Correspondence to AUR Group (CP2000s, etc.): 6 months
  • Response Time on Other Correspondence to the IRS: 12 months

Those timelines are, bluntly, ridiculous.  But that’s what’s going on today.  Though I expect the IRS to return to full staffing at Service Centers this Fall, it will likely take the IRS years to get out from under the backlog.

The Trump Organization Indictments

July 5th, 2021

Unless you’ve been hiding under a rock, you know that The Trump Organization and its Chief Financial Officer, Allen Weisselberg, were indicted on 15 counts including grand larceny, conspiracy, and tax fraud.  The former President is (and has been) a very divisive figure, and the comments on this run the gamut from “witch hunt” to “justifiably deserved.”  Is this from a banana republic (as Dan McLaughlin alleged) or a “travesty of justice” (as the New York Post opined)?  The indictment can be read here.

First, note these are all allegations; no one has been found guilty.  It’s also possible that former President Trump had nothing to do with this and had no knowledge of it.  However, in a closely-held family business its usual that all senior personnel would be aware of something like this.

So are these serious charges?  Absolutely.  If we take the allegations as true, there was $556,000 in federal taxes, $107,000 in state taxes, and $238,000 in New York City taxes that were evaded.  You cannot deduct personal expenses on a business return–this is something we tell everyone.  (Do note that some businesses can take a Home Office deduction, and other similar items related to business use of home.)  I’d love it if my business could pay my mortgage, utilities, and property tax.  That would be decidedly dumb (and illegal), so I manage to pay those expenses myself.  Now, a business can pay personal expenses for an employee, but those expenses paid become additional compensation.  If we take the indictment’s allegations as true, that didn’t happen here.

Is the dollar amount involved enough to warrant criminal charges?  Yes.  This is over $900,000 in total tax evaded, and that’s more than enough to cause a criminal charge.  But are those on the right correct that the only reason there are criminal charges is Trump?  Almost certainly, yes.  The Manhattan District Attorney doesn’t like the former president, so he was a target.  In most tax investigations, if the business admits liability and agrees to pay the tax and penalties criminal indictments don’t happen.  However, if you’re a celebrity or a politician (or worse, both), the ‘normal’ rules don’t apply and you’re a target.  You need to be clean, because you will be audited.

(An interesting fact is that President Trump a few years ago noted that he had been audited almost constantly over time.  Yet the IRS didn’t come after him.  It may be that they didn’t see the information that the Manhattan D.A. saw, or it may be they didn’t find anything illegal.)

The Trump Organization’s attorney noted he’s never seen such an indictment; that when companies do things like this they normally pay a civil fine (along with the tax, penalties and interest).  Is this prosecution politically motivate?  Absolutely, and here I agree with the critics.  There’s no doubt that if it were my business accused of this we would have been offered that.

Still, the scheme (if true) is quite brazen and decidedly wrong.  It will be interesting to see how this plays out over the next year or so.

 

35,300,000

June 30th, 2021

This morning, The National Taxpayer Advocate issued her semi-annual report to Congress.  In the report is the true state of tax returns at the IRS.  Fair warning, it’s not a pretty picture.

As of the close of the filing season (late May), there were 35.3 million tax returns that were unprocessed.  This includes:

  • 1.1 million paper returns received in 2020 (100,000 for individuals and 1 million for businesses);
  • 15.7 million paper returns received in 2021 (6 million for individuals, 4.6 million for businesses, and 5.1 million “unspecified”);
  • 10.3 million returns awaiting “Error Resolution” (9.8 million for individuals, 500,000 for businesses);
  • 1.4 million returns that are “Processing Rejects” (1.2 million for individuals, 200,000 for businesses);
  • 2 million returns that are “Unpostable” (1.1 million for individuals, 900,000 for businesses); and
  • 2.1 million ID Theft returns (all individuals).

And if you called the IRS general phone line for individuals, you had a 3% chance of getting through!  (This is actually better than the Taxpayer Advocate’s initial estimate of 2%, not that there’s a significant difference here).  Tax professionals have special phone numbers to call.  I found that I had about a 5% chance of getting through–or a 95% chance of not getting through.  And I pity those who had to go through Identity Verification.  The IRS increased the number of returns subject to this while phone staffing on these lines decreased.  The Taxpayer Advocate called it a “Historically low level of IRS telephone service.” I won’t argue.

While I expect things to improve, it’s likely going to take years for the IRS to work through the backlog.  I currently quote to my clients the following timelines:

  • Processing time for a paper return: 10 months
  • Processing time for an amended return: 12 months
  • Processing time for your refund if you do not get it in the first month after e-filing: 5 months

The above numbers are averages.  I had a client (who I helped come into compliance) file back returns last year.  One return took 16 months to be processed.   That return was incorrectly processed by the IRS, so a letter must be sent (so the client is likely looking at another few months before it’s correctly processed).

The IRS is doing better on correspondence (the average response time is 6 months), but it’s nothing to write home about.  An issue not mentioned in the report is the IRS issuing Notices of Deficiency prior to reading correspondence addressing underlying issues (thus, the notices should not have been issued).  I know that the Taxpayer Advocate is working on this systemic issue, but a resolution is, unfortunately, unlikely in the near future.

I do expect the IRS Service Centers to be restaffed this Fall, and this will then start to help on reducing the backlog.  Unfortunately, a backlog that was built over 18 months will take at least that long to be undone.

 

Here We Go Again: Bias in the IRS’s Tax Exempt Group

June 20th, 2021

Most of us remember the IRS scandal from 2013.  In that scandal we learned that the IRS and/or individuals working at the IRS deliberately targeted conservative tax exempt (nonprofit) organizations.  It was a huge scandal at the time, and it led directly to the IRS’s budget being cut.  It’s now eight years later, and one would assume the IRS had learned.

One would be wrong.

From various sources we learn that the IRS has denied 501(c)(3) status to a group titled Christians Engaged.  Why? Quoting from the actual letter denying 501(c)(3) status:

[Y]ou are serving the private interests of the D party [D means Republican] more than incidentally in contravention to Treas. Reg. Section 1.501(c)(3)-1(d)1(ii) as well as serving a substantial nonexempt private purpose. For example, you educate Christians on what the bible says in areas where they can be instrumental including the areas of sanctity of life, the definition of marriage, biblical justice, freedom of speech, defense, and borders and immigration, U.S. and Israel relations. The bible teachings are typically affiliated with the D party [Republican] and candidates. This disqualifies you from exemption under IRC Section 501(c)(3).

This is, bluntly, unbelievable.  President Biden, a Democrat, is a practicing Catholic who presumably believes in the Bible.  If we believe this letter, only Republicans believe in the sanctity of life, marriage, freedom of speech, defense, and US-Israel relations.   I guess if the IRS says its true we must now all vote Republican, because apparently God is a Republican.

A 501(c)(3) charity does need a charitable purpose.  According to the President of Christians Engaged, Bunni Pounds, they, “…[W]ant to encourage more people to vote and participate in the political process.  How can anyone be against that?”  It appears that for at least a few individuals at the IRS (the employee who wrote this letter and his supervisor), having more Christians engaged in the political process is a bad thing.

I do expect IRS Appeals to overrule the tax exempt group.  I also hope that there is some additional remedial training for that group because it sure looks like they haven’t learned a thing in eight years.

 

§1031 Exchanges for Cryptocurrency: The IRS Thinks Not

June 19th, 2021

Back in September 2017 I wrote a piece titled, “Can You Use a §1031 Exchange to Defer Gain with Cryptocurrency?”  The conclusion I drew was, “[M]ost exchanges of one cryptocurrency for another do not qualify as §1031 exchanges and it’s more likely than not that the IRS will rule that two different cryptocurrencies are not eligible for like-kind treatment.”  Do note that after December 2017 you can only use a §1031 like-kind exchange for real property, so today the answer is clearly no.

It’s likely some taxpayer was audited on this issue by the IRS, and the auditor asked the Chief Counsel’s Office for whether a like-kind exchange (aka a §1031 exchange) was allowed for cryptocurrency.  The Chief Counsel’s Office issued a memorandum that for Ether (ETH) from Bitcoin (BTC), Bitcoin for Litecoin (LTC), and Ether for Litecoin, the answer is no.  The Chief Counsel’s office looked at the underlying character of the cryptocurrencies and found them to be different and, thus, not qualifying for a like-kind exchange.

While it’s nice to have my conclusion verified, this is now fairly irrelevant.  As I noted above, today you can only do a §1031 like-kind exchange for real property.  There are few taxpayers who will be impacted by this given that generally 2017 returns are beyond the statute date.

“I Haven’t Received My IRS Refund. Can You Help Me?”

June 18th, 2021

This past week I fielded a number of phone calls asking this question.  Unfortunately, the answer is no.  Neither I nor any other tax professional can speed up your IRS refund.

First, the good news: about 90% of IRS refunds are moving through the system normally (with the refund being issued between 10 and 21 days after filing).  However, the remaining 10% of returns with refunds are facing long delays; I estimate that these refunds will be delayed on average between three and five months.  Why?

There are two issues causing the delays.  First, the IRS is manually checking all refunds where an individual is claiming a refund for not receiving the Recovery Rebate Payment(s) (Form 1040, Line 30).  Due to staffing issues at IRS Service Centers, this takes quite some time.

The other issue is “errors” when processing.  This doesn’t mean there’s an error on your return.  Rather, as part of normal processing a few returns “fall out of processing.”  In most years, the “errors” are fixed within one to four days, and the delay is hardly noticed.  But 2021 isn’t a normal year.  Because of Covid, IRS Service Centers are not fully staffed.  Returns that fall out of processing go in a giant (virtual) stack to await a human to review the error, fix it, and have the return complete being processed.  Instead of taking days, we’re talking months.

Your tax professional cannot fix this.  There is no one to call to have this resolved.  Indeed, the IRS asks that you do not call them as there really is nothing that can be done.  Please don’t call your tax professional either; he or she cannot make your refund come to you any faster this year.  You must just be patient.

The only good news is that we expect to see many IRS employees return to Service Centers in the coming weeks.  That should eventually help to resolve the problem.  Until then, you should just periodically check the IRS’s “Where’s My Refund” website.  And do realize that you will receive interest from the IRS on your delayed refund (though that interest is taxable).

The 2021 Tax Season (Part 1)

June 14th, 2021

I’ve had good Tax Seasons and bad Tax Seasons, but the first part of the 2021 Tax Season was unique.  And uniqueness doesn’t mean good nor does it mean bad.  Both points were present this year, and continue to be present.  Let’s look at the highlights and lowlights of the first part of the 2021 Tax Season.  (I state “first part” because we still have 50% of our clients’ returns to file–we always have a lot of clients on extension.)

The IRS’s Does Great!  Let’s heap some praise on the IRS.  The IRS generally did an excellent job in implementing the laws that Congress passed dealing with Covid relief.  These laws required many changes to the antiquated computers that the IRS uses to process tax returns and given the IRS’s systemic issues (low staffing, ancient computer systems, etc.) they did an excellent job.

The IRS Made Some Confounding Decisions.  Let’s take tomorrow’s tax deadline (June 15th) for residents of Texas, Louisiana, and Oklahoma as an example.  Residents of those states can timely file returns tomorrow, and timely file extensions tomorrow.  (Individuals residing outside the United States can also so file.)  But if a resident of Texas wants to file an extension, that extension must be mailed to the IRS.  Ask any tax professional about correspondence sent to the IRS and the theme song from the musical Annie comes to mind (tomorrow, tomorrow, it’s always a day away).  Yet the IRS wants to increase the mail backlog.  This makes no sense.

Speaking to the IRS Is Near Impossible.  The Taxpayer Advocate reported that 2% of individuals attempting to reach the IRS actually do so.  And when you do, you’re likely on hold for a long time.  I have eight matters that require that I speak with the Practitioner Priority Service (PPS).  I have either Power of Attorney forms or Tax Information Authorizations for each client.  Some of these I could handle using the IRS’s e-services system if the IRS would timely process the forms.  It’s currently taking the IRS three months to process forms.  So I (along with other tax professionals) must call the IRS up.

I’m currently on hold for the business side of PPS, with a hold time of more than one hour noted.  Now, I can work while I’m on hold but most individuals cannot–they can’t take phone calls, they must sit at home, etc.  Meanwhile, I’ve tried to reach the individual side of PPS four times a day for the last week and cannot get through.  If I cannot get through over this week I will have to mail letters on some of these matters, delaying resolutions for months–it’s taking the IRS on average ten months to read the mail.  (While Commissioner Rettig states the IRS is timely opening their mail, they are not timely reading their mail.)

I have a client who had to mail his 2019 tax return to the IRS (the return has a form that is not allowed by the IRS to be efiled).  It was mailed in late September (he was on extension, waiting for a K-1). The return was just processed.  But my client was selected for Identity Protection Verification–that requires my client to call the IRS.  He’s tried three times a day for the last week and cannot get through.  Now, my client’s refund is about $40, so it’s not a big deal but the IRS’s inability to handle phone calls right now is a disaster that retards effective tax administration.

This Was an Early Year.  Tax seasons are sometimes late (everyone wants extensions) or early (everyone wants to file yesterday).  This was an early year–many clients wanted their stimulus money and, thus, wanted to file early.  Unfortunately, there are so many hours in the day (my cloning machine still needs work) and…

Tax Paperwork Comes Later and Later Every Year.  This year was no exception.  Most of my clients who are in partnerships saw their K-1s come one week later than last year.  That doesn’t sound like much, but a day here, a day there, and then you’re talking about many days.  (My apologies to Senator Dirksen.)  Adding to this was…

Congress Changing the Tax Law in the Middle of Tax Season Delays Tax Filings.  Many clients received unemployment.  When Congress changed 2020 tax law in March 2021, that means that tax professionals had to wait for (1) the IRS to update their computers and make any rules about the new laws and (2) the tax software to be updated.  While the IRS and the software companies generally did a good job, this added to delays.

Most of Our Clients Understood This.  We appreciate your patience this year.  For those who did not understand, please note that we did inform you of our deadlines when we sent our Engagement Letters (and all returns whose paperwork was received prior to the deadline were filed).

There Are Black Clouds on the Horizon for Tax Administration.  Congress and the IRS keep putting more and more work on tax professionals, and this is going to add to the cost of tax filings.  Consider the new Schedule K-2s and K-3s.  These are going to be forms used to report international transactions on partnerships and S-Corporations.  Lots more work.  Congress tends to pass laws mandating things like phone interviews for the Child Tax Credit.  This doesn’t sound like much, but take three minutes here and three minutes there–well, I’ve used my Dirksen quote already but you get the idea.

However, that’s nothing compared to the Pro Publica leak.  For those who haven’t heard, Pro Publica, a liberal special interest group, was provided tax documents showing how much various millionaires and billionaires paid in taxes.  (I will have a lot more on this later this week.)  Tax documents are never supposed to be released.  Indeed, felonies have been committed.

Democrats want to increase reporting to the IRS (as a way to pay for increases in taxes.)  Does anyone think that Republicans in Congress will go along with this given that the IRS can’t safeguard what they currently have?  When the previous tax scandal occurred (the Lois Lerner/targeting GOP-leaning non-profits), Republicans cut the IRS’s budget (it was the only thing they could do to show their displeasure).  Unless the felon is found in the next few weeks, expect the GOP to do the same thing as it’s their only means of showing displeasure.

Many Tax Professionals Are Unhappy.  Jason Dinesen, an Enrolled Agent in Iowa, penned a piece titled “The Tax Field is Broken.”  I don’t completely agree with the article, but much of what he writes is true.  Tax professionals do have lives outside of their businesses, and many have not had a break in over a year.  I have seen many posts about tax professionals retiring.  That said,…

I’m Still Standing.  Our business is doing fine (indeed, if you’re a tax professional and are interested in joining our firm, let us know), and I have no plans on retiring.  This was, though, the first year I was generally miserable for more than a month.

Expect Tax Preparation to Impact Inflation.  Everything I see shows that the supply of tax professionals is decreasing, the amount of work necessary to prepare a return is increasing, and the demand is increasing.  The Law of Supply and Demand says that if supply decreases and demand is constant, prices go up.  Here, we have a decrease in supply and an increase in demand and the amount of time needed to prepare the average return increasing.  Prices are going to increase, possibly significantly.

That’s my rundown on the May deadline.  We’ll see what the second half of the Tax Season brings us.

Bozo Tax Tip #1: Lies, Deceit, and Nefarious Schemes!

May 14th, 2021

The following two stories are true.  Only the names have been changed to protect the Bozos.

I was at the barber shop a couple of weeks ago and overheard a barber (not mine) telling someone,

…I just filed my tax return.  I didn’t use Ray, my normal guy, because my Realtor wanted me to use Agnes Smith.  Gloria, my Realtor, wanted my return done fast so I could qualify for a loan…yes, she made up some of the numbers on my return but I’m self-employed.  Agnes didn’t care, and Gloria liked the result.  Agnes told me I could amend my return later to get it right.

Yikes!  Let’s count the Bozo actions.  We have the unnamed barber who is signing a return that’s knowingly wrong, probably also committing bank fraud in trying to get a loan to buy a house.  There’s Agnes who appears to have slept through ethics classes during continuing education.  There’s Gloria, who may be guilty of aiding and abetting, and is certainly missing ethics for Realtors.

The Las Vegas real estate market is really booming: there’s high demand and really low availability.  And the law of supply and demand leads to prices going up, so some are engaging in Bozo behavior in order to be able to buy their dream home.

Committing a felony (or two or three) in order to buy a home is not a brilliant idea.  A better idea is to wait for prices to moderate, or perhaps not aiming for the McMansion and just buying a smaller (more affordable) home.  Yet the Bozo contingent is what it is.

And here’s story two.  John Smith, a professional gambler, wanted to get his returns done right.  “I have a feeling,” he said, “That there were issues with my 2019 return.”  So I took a look at his return.  I saw his occupation listed as “Professional Gambler.”  But his return lacked a Schedule C (sole proprietorship); instead, all his gambling winnings were reported as “Other Income.”  I noticed he was using the standard deduction.  I looked at his records, and there were both winning and losing sessions.  The net of those was about $5,000 higher than what was reported on Other Income.

I asked Mr. Smith about this. “Oh, I told Ms. Doe [his tax professional] what my business expenses were.  She told me as a professional gambler I could net my wins and losses, and there was no reason why I couldn’t take my business expenses.”

Ms. Doe, who happens to be both a CPA and JD, is correct: a professional gambler does get to net his wins and losses.  But they have to be reported on Schedule C as a business, and you have to note business expenses in each category.  And a professional gambler must pay Self-Employment Tax.

“Ms. Doe told me the way she did the return I wouldn’t have to pay Self-Employment Tax.”  Ms. Doe was right!  Of course, the return was wrong.

I explained to Mr. Smith that he should amend his 2019 return and pay the additional tax.  It’s far better to come clean with the IRS then to have them come after you.

There’s a corollary to this second story, too.  In November I did a consultation with a potential new client in Missouri.  He was starting a new business and wanted his taxes done right.  I listened to him, he explained his business (trucking/logistics), and how to set it up (from an accounting and tax perspective).  I gave him what advice I could, but told him I was not the right person for him for the long-term.  I knew little about accounting methods for that industry, and there were individuals who specialized in it who could do a far better job than I could.  It’s important to know your limits, and saying “no” at times is a good idea–that client was not a good fit for me.  The same was true of Mr. Smith to Ms. Doe, but she apparently  felt otherwise.

That’s it for the 2021 Bozo Tax Tips!  I hope you’ve enjoyed them.  We’ll be back to normal posting starting with a recap of the 2021 Tax Season (aka a miserable year) in about one week.

Bozo Tax Tip #2: Ignore Cryptocurrency!

May 13th, 2021

Three years ago was the last time I included cryptocurrency in my Bozo Tax Tips.  No matter how you slice it, when you dispose of cryptocurrency you have a taxable event.  In the view of the IRS, every disposal must be individually noted on your tax return.  If you have thousands of transactions, you may have hundreds of pages of such transactions to include on your return.  (Thankfully, we can attach pdf’s to tax returns with the details rather than having to enter them into software.)  There are now numerous products available to help you with cryptocurrency taxation (in the United States).

Adding to the “fun” with cryptocurrency taxation is that it is taking the IRS three years to issue guidance on anything in crypto.  Take DeFi (decentralized finance) with crypto.  Perhaps we’ll see the IRS issue guidance by 2024 even though it’s impacting tax returns in 2020.  We can always hope….

The IRS is active in one area: trying to find individuals who are ignoring cryptocurrency.  Over the last month the IRS has successfully enforced summonses against Poloniex and Kraken.  To date, most IRS enforcement efforts in cryptocurrency have been going toward the low-hanging fruit: individuals who have not reported their cryptocurrency.  I do expect the IRS to start looking at auditing large users of crypto.  Given Commissioner Rettig’s remarks on the Tax Gap, IRS management clearly believes that there’s a lot of tax dollars to be found in cryptocurrency.

There is one truism, though: If you don’t report your cryptocurrency gains (and losses), you’re violating the law.  So if you need to take some time to figure it out before filing your 2020 returns, make an estimate of your gains (or losses) and file an extension.  Or you can choose the Bozo behavior of ignoring your cryptocurrency.

Bozo Tax Tip #3: Move Without Moving!

May 12th, 2021
Nearly ten years ago, we moved from Irvine, California to Las Vegas. The home in Irvine was sold, a home was purchased in Las Vegas, and the belongings went from the Golden State to the Silver State. Cars were re-registered, doctors changed, and no one would say that we didn’t become Las Vegas residents. But some people like to have it both ways. Nevada’s income tax rate is a very round number (0%), while California’s maximum income tax rate is a ridiculous (in my opinion) 13.3%. That certainly could drive individuals to move in name only. California’s Franchise Tax Board (FTB) realizes that, and they (along with New York State) lead the country in residency audits. If you really do relocate, a residency audit is a minor annoyance. But let’s say you reside in Silicon Valley, and you buy a home in Reno but keep your home in Los Altos. Did you move? Or did you just move in name? The Bozo strategy is the latter: moving in name only. I’ll just have that little home in Reno, spend the ski season in Nevada but really continue to live in Los Altos. In a residency audit, the FTB will look at where you’re actually spending time, where you’re spending money (if eight months of the year you’re patronizing businesses in Silicon Valley, it doesn’t look like you really moved), and a variety of other factors. ( The FTB has an excellent Residency and Sourcing Manual that explains California laws on the subject.) Given the current pandemic, state revenues are being squeezed. The one government agency where increasing employees increases revenues is the tax agency (especially employees in audit). While I expect to see states cut employees, I’ll be surprised to see anything but minor cuts in tax agencies. We’re also likely to see an increase in audits looking at telecommuting issues. In any case, if you move in name only you’re painting a target on your back for a residency audit.