Noting recent stepped-up federal, civil, and criminal tax collection efforts, Domina Law Group pc llo determined, during a recent discussion among its lawyers, to post a word of caution on this website. This word of caution, which is general and not intended as specific legal advice, concerns a tax practice of significant concern.
Dave Domina said, “From time to time, we find ourselves providing services to a client who was counseled by an accountant, or someone else, to form a corporation or limited liability company in a state without an income tax and then claim to live there to avoid income taxes due Nebraska. The income, however, is earned in a state with an income tax.”
“We don’t understand what accountants or others are thinking,” Dave Domina said. Domina noted, “We provided intense service for a client who was urged by an out-of-state lawyer to create a shell corporation in a foreign jurisdiction and title all his vehicles in the jurisdiction. Our client never bought, housed, or used the vehicles there for one mile of driving. He did this because the lawyer claimed there would be no motor vehicle tax to pay and virtually no licensing fees.” Domina said the client “wised up abruptly” when confronted by State Revenue Department personnel and representatives of the Attorney General’s Office.
In other instances, we have seen people who obviously earn their income as a result of efforts or activities in a state with an income tax, but were encouraged to claim residency in a state without an income tax and make filings claiming their income is earned there.
Domina Law Group pc llo cautions that people should not “believe you will be invulnerable because you’ll either ‘get away with it’ or ‘have a defensible argument when the government comes calling.’”
“What sounds ‘clever,’ far away from a government investigator or a courtroom, is a lot less ‘clever’ sounding as a witness, testifying under oath, in a high stakes case,” Brian Jorde added.
Domina Law Group pc llo expects tax enforcement by states to step up dramatically as states try to fill the void of their financial coffers in the face of oppressive state budget constraints nearly everywhere in the United States.