How to Avoid Boiling Blood

by | Nov 7, 2003 | Archives

My recent article on how a reader had bank accounts tied up incorrectly over state tax (that was not due) is at

A reader here shows how to avoid this happening to you when he wrote:

“Hi Gary, As a tax preparer, I have run into states incorrectly assessing taxes because an IRS return showed an address in that state several times in the past, with my clients. Here is an easy solution, and perhaps you will want to share this with all your subscribers.

“Because the IRS shares information with all state revenue authorities, it is prudent for a taxpayer to familiarize him/herself with the tax laws (for individuals) of the state shown on the federal return as the taxpayer's address, and ALWAYS file a state tax return to that state, even when not a resident of that state, and even when not technically required to do so. Simply file a non-resident state return, report all your income that you reported on your federal return, and then show that all (or most) of it was non-taxable to the state in question, therefore resulting in no tax due to that state. This then gives notice to the state that the taxpayer was a non-resident, and therefore owes no taxes to the state. This is, of course, a courtesy to the state, and shows respect to the state, and, more importantly, will probably pre-emt any potential adverse action against the taxpayer by the state. It also serves as an estoppel against any illegal adverse action the state may decide to take in future years. It is preventative in nature. Even though it may cost a few extra bucks to file a non-resident state tax return, it can save an awful lot of headaches in the future. And taxpayers who file their federal return using an address in a state that doesn't have an individual income tax can skip this entirely. There are currently nine states that do not have an individual income tax. Ciao”

So readers beware. If you file taxes from a state where you are not resident and if that state imposes income tax, follow the advice above or you could be incorrectly taxed and in for red tape at the best. Another way to resolve this is to avoid banking in that state and even better bank aboard.

Monday’s message shows with the crashing U.S. dollar why it is even more important reason to bank abroad now.

Until then, good banking to you.