Ford, Merrill Lynch broke the law

Call it whatever you like but Harold Ford, Jr. broke the law when he worked in New York and didn’t pay taxes there.  But he couldn’t have pulled this off without some help from Merrill Lynch.

Merrill Lynch was aware that he was working in New York. As his employer, they were responsible for withholding New York income taxes from his pay. Ford could claim that he was exempt from NY taxes all day long – and Merrill Lynch could have not deducted the taxes. But they would still have to show that the state where the money was earned was NY. That designation on the W-2 would have triggered the state of NY to require a tax return be filed by Ford. The initial announcement – that Ford would have offices in Nashville and New York – doesn’t eliminate the responsibility of Merrill Lynch to designate on his W-2 what income was earned where.

The IRS is pretty clear on what a “tax home” is:

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home.

[…]

In determining your main place of business, take into account the length of time you are normally required to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time spent at each location.

New York, like most states, clarifies what is resident versus a non-resident but it is clear: if you earn money in New York, you pay taxes on it in New York. The only reason Ford hasn’t filed a NY return is because Merrill Lynch didn’t report it as NY income.

They both broke the law. And somebody should pay. NY should make Ford file returns for the past three years – the statute of limitations hasn’t expired yet – just like they would anyone else. And charge the maximum penalties allowed by law.

h/t Left of the Hill