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ABSTRACT: OUR LOCAL CORRESPONDENTS about tax evasion and the residency requirements for New York City taxes. Tax rates on the rich have become a highly charged political issue. Mitt Romney, after resisting making his tax returns public, revealed that he paid 13.9 per cent of his 2010 adjusted gross income of $21.6 million in federal tax. Some of the wealthiest people in the country pay even less. The Internal Revenue Service discloses detailed statistics for the four hundred highest-earning taxpayers in the country. In 2008, the most recent year available, those taxpayers had an average adjusted gross income of two hundred and seventy million dollars each. Thirty of them paid less than ten per cent in federal taxes, and a hundred and one paid between ten and fifteen per cent. On average, the group paid 18.1 per cent. President Obama has seized on that fact, making tax fairness a central issue in his relection bid. The President has called for comprehensive tax reform and for specific proposals for a Buffett Rule, which would raise tax rates on taxpayers earning more than a million dollars a year. Romney has called for a twenty-per-cent across-the-board tax cut, while limiting some deductions. None of the proposals address the fact that rich people arent taxed on certain income, either because it is exempt, as with interest on municipal bonds, or because they claim to be living outside the jurisdiction that is levying the tax. Relatively scant media attention has been paid to residency requirements, even though enormous revenue is at stake. Tax audits and hearings are ordinarily confidential, but several published opinions and related appeals reveal how some New Yorkers take advantage of the residency requirement. (New York City tax laws dont apply to people who are deemed to be nonresidents, even if they own a residence in the city and work there. Nonresidents are allowed to spend no more than half a yeara hundred and eighty-three daysin New York City.) Many states have such requirements. Relatively few cities levy personal income taxes, but the largest ones that do, besides New York City, are Baltimore, Cleveland, Denver, Detroit, Philadelphia, Pittsburgh, Portland, San Francisco, and St. Louis. The problem is especially acute for cities like New York, which are geographically close to nearby lower-tax jurisdictions. People who want to avoid both New York State and New York City income taxes are permitted to own a residence and work in the city and the state but must maintain a primary residence outside the state. The residency loophole provides an obvious financial motive to lie. One prominent tax lawyer said that cheating is rampant. Discusses the residency-requirement cases of hedge-fund manager Julian Robertson, criminal-defense attorney Thomas Perry, and Martha Stewart.

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James B. Stewart: How Julian Robertson of Tiger Management dodged taxes.