Wealth Actually

MAXIMIZING EXECUTIVE AND FAMILY OFFICE TALENT In this 101st episode, we’re going to explore the disconnects in Human Capital Development. This is a crucial issue for family enterprises looking to transition to the next generation, closely held businesses making crucial hires and startups looking to take their business to the next level. To no one’s surprise, Covid, Remote Learning and WFH have had massive impacts on the development of students, business plans, workers and executives.  To help us think through these issues I spoke with DEIDRE KOPPELMAN of PEAR CORE SOLUTIONS Since founding PEAR™ in 2003, Deidre has worked closely with Business owners, Senior-level nce founding PEAR™ in 2003, Deidre has worked closely with business owners, senior-level executives, and organizational teams providing strategic business management consulting across a variety of industries. Deidre puts her focus into strategic planning, organizational development, leadership development, and workplace behavioral issues for her clients. Deidre is one of 5 individuals in the State of New York that is a Kolbe® Certified Consultant. We talk about a variety of issues facing higher education, ways to improve the HR industrial complex and the new employer / employee dynamic. We get into Human Capital Coaching and Performance and talk bout how many typical approaches ignore how people approach certain tasks and how many this approach is different from typical personality and aptitude tests. Deidre also lays out the terms of understanding how people perform (well) We go into detail on the war for talent and performance and the negative effects that can occur with bad decisions around key role hires or the poor management of current teams. Finally, we discuss the need to update the study of people’s hardwiring at the educational and workplace levels. Outline Deidre Koppelman's Background What are the suite of tools out there? The three modes of analysis that you think are important- Conative (Kolbe) “Doing” - Modes of Operation (not about how smart you are or social style it’s your “hardwiring”)Affective- “Feeling”Cognitive – “Thinking” When should this type of testing occur? Workplace? College? High School? How is this self-awareness not incorporated at the high school/college level when people are making huge decisions?  Does this explain “not fitting in” at school/firm/career? How has HR seemed to miss this in the interview process? Expense, Culture? For companies that want to develop their workforce/drive culture, where can this help? How do enlightened managers incorporate these tools with their high performers? How do you use them drive organizational performance/change? Team building?  Is it better to flood the one of have complimentary pieces? Are there differences in functional Parts of organizations? ExecutivesLegalFinanceHRSalesTech/Product development Workforce dynamics- Where does COVID fit in? WFH – remote work – how do people stay motivated? If the job can be done at home, it can be done in Montana . . . or Bangladesh- is that a problem? Safety vs Entitlement at the workplace? Any other future thoughts? How do we stay in touch with you? DEIDRE KOPPELMAN https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Welcome Back to the Wealth Actually Podcast- This episode marks a big milestone.  We have hit the 100th EPISODE. I was pleasantly surprised to see that we have been downloaded in all 50 states and 114 countries. A big thank you to everyone who listens. As always, it’s great for the show’s momentum if you subscribe, leave reviews and share. For this 100th episode, I’m thrilled to have my friend, BRIAN PORTNOY, on the podcast. We talk about the next phase of behavioral psychology in the wealth management industry, the formation of his new company, SHAPING WEALTH, and his entrepreneurial journey. Brian is one of the world’s leading experts on the psychology of money.   He has written multiple bestselling books, including The Geometry of Wealth, https://www.amazon.com/Geometry-Wealth-shape-money-meaning-ebook/dp/B07CXS9NLG/ Brian is a CFA Charterholder and earned a PhD at the University of Chicago. Last but certainly not least, he is the founder of the wealth education firm, Shaping Wealth which we’re going to talk about here. SHAPING WEALTH -Describe what "Shaping Wealth" does? How is it grounded in your book's teachings? -What is the problem that the Wealth Advice industry has that SA is addressing? -How does reframing the psychology of "enough" advance financial advice for people? -How do advisors evolve to think more "psychologically" and with longer term legacy time horizons? - How does Shaping Wealth integrate with the tools that advisors use to advise their clients? -The entrepreneurial path- what is it like going down this road? -What is the experience of building a company off of your vision/IP? -What has been fun? What has been challenging? OUTRO - How do we stay in touch? How do advisors reach out to you? SHAPINGWEALTH.COM @BRIANPORTNOY on twitter https://twitter.com/brianportnoy https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Welcome back to the 99th episode of the "Wealth Actually" Podcast . . . (We’re recording right before Christmas and I’d like give a special thanks to Matthew Passy who helps me sound good and make the trains run on time.) With the end of the year fast approaching, philanthropy is on the minds of many people. For charitable organizations, the mad rush to meet their goals underscores many challenges they face.  Understaffed, under-resourced, and using old tools, non-profits face an uphill climb every year. By using marketing technology, Artificial Intelligence and data science tools, a new company is trying to help with this problem.  ARJUNA SOLUTIONS applies the same marketing concepts and data science found at the top consumer companies in the world to the non-profit space. To take us through the idea of how technology and the non-profit space can intersect, I’m going to speak to COLIN STEWART. Colin leads Arjuna’s groundbreaking philanthropic practice, which enables nonprofits to adopt new technologies and increase revenue more easily via philanthropic funding.  We focus on how non-profit organizations can increase their revenue through more data-driven and targeted asks. Finally, we talk about how HNW donors and charities can deepen their relationships and multiply the impact of major gifts in measurable ways through technology. OUTLINE: Technology and the Importance of Philanthropy ARJUNA SOLUTIONS background- What does Arjuna solve?  How do you optimize the right amount to ask for so that you get the most out of a donor (without scaring them off)? Arjuna's ExactAsk process-Where does the Artificial Intelligence fit in?  What data are you using? How do you manage the data to get the right ask amount?Where does it integrate with the recipient organizations systems?For which organizations is this right? (Large Donor Bases where there is plenty of data to analyze and marketing systems to optimize).How can the AI process help the donor amplify a large gift to an organization?-  When multiplying the impact, Is this really a case of a $1 gift generating $3?What does the gift process look look like?Besides potentially more donations, how does it it help the charitable organization?How do you measure success? How does the client measure success?What's next?How do we stay in touch? COLIN STEWART https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

Life insurance is one of the core tools in wealth management. It replaces income for families, funds the payment of estate taxes, and, given its tax advantages, can serve as an investment vehicle. However, the culture of life insurance, its sales process and its regulatory framework live apart from the world of stocks and bonds. To that end, there is a new framework in New York that is changing the way life insurance is presented to clients: Rule 187. This rule and the law that surrounds it is in contrast to the way in which life insurance has been traditionally presented. It imposes a new "best interest" standard and recognizes the importance of an accurate demonstration of the COSTS of insurance to clients. And for the wealth advisers and fiduciaries out there, Rule 187's reach goes far beyond the borders of New York. Enter STEVEN ZEIGER https://frazerrice.com/wp-content/uploads/2022/06/TRIMMED-Rice-Zeiger-4-29-22-r-187-video-1920x1080-1.mp4 Steven serves as a Managing Director of Wealth Management at KB FINANCIAL and is a recognized expert in applying prudent investor guidelines to life insurance product selection. He works with large clients and advises individual and corporate trustees on their responsibilities around life insurance. Steve will help us understand the practical application of Rule 187 and some of the potential future impacts on the business of life insurance nationwide. After this podcast, you should have a new appreciation for the way life insurance should be bought . . . and sold. (As a reminder, this podcast is for education purposes and not investment advice. Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. KB Financial is independently owned and operated.) Outline: Fiduciary Responsibilities Around Life Insurance in NY- Steven's Background- How is life insurance used?  Income Replacement, Estate Tax Funding, Business Succession, Investment Vehicle How do most people think the word "fiduciary" works with life insurance? How is it regulated nationwide? By state with guidance from NAICWhy is NY different?  RULE 187 and the New "Best interest" standardWhat court cases should high end advisors keep in mind?Which advisers are affected? Trustees? NY Why are the costs important? And to whom? What is the important information in an insurance projection?What information is usually missing and why is that important for NY compliance purposes?The problem of co-mingling cost and performance metricsFrom a 30K ft. level, how does that impact the allocation of premium dollars for clients?*Either save premium on current DB, or by more DB/current premium- At what levels should this cost-based interaction be engaged? What does look like for the NY advisers? The advisor community in general? RIA's? The Life Insurance Industry? How do we stay in touch?(Contact info etc . . . ) STEVEN ZEIGER Useful articles around Life Insurance and RULE 187 Trust & Estates -A Shot Across the Bow - Veralytic Inc.  - (Using independent research) DownloadDocumentFile.ashx (uniformlaws.org) - (Investigating Insurance Costs) FINRA: 2210. Communications with the Public | FINRA.org - (Don't compare illustrations side by side, disclose costs) NYSDFS Regulations - Insurance: Final Adoption of First Amendment to Insurance Regulation RULE 187 (11 NYCRR 224): Suitability and Best Interests in Life Insurance and Annuity Transactions (Care skill prudence diligence cost performance risk) CFP: standards-of-professional-conduct.pdf (cfp.net) (care skill prudence diligence cost performance risk) (Disclosure: Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. KB Financial is independently owned and operated.) https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

This latest podcast is special because it harkens back to 2000 when I wrote a paper in law school about the use of securitizations to disrupt the music industry.   I mused about the disruption of the music industry and the demise of the traditional way of doing business.  I wasn’t far off! The music industry has undergone enormous changes with the advent of streaming. The demand for content has never been higher with new ways to monetize content.Add to that the fascination of NFT’s and the new attention into the divisibility of artists rights. Finally, with rock-bottom interest rates and an insatiable hunger for non-correlated returns, music rights have become a popular asset class for investors. To help think about this, I went to the source, DAVID PULLMAN. David is a pioneer in music industry finance. His firm THE PULLMAN GROUP covers many aspects of the music industry including publishing and mechanical rights, royalty management, loans, advances and securitizations. We get into: Pullman's background in finance and investment bankingWhat went into the Bowie transaction and why it was contemplated in the first place The challenges of working with complicationWhat the later transactions with artists like James Brown and Holland Dozier Holland were likeHow streaming services like Napster and then iTunes, Pandora and Spotify changed the dynamicsHow the Bowie Bond has come out the other side and is relevant to new players in the industry. (For some context into the Bowie Bond and the concept of Intellectual Property Securitization, here is Quick Synopsis from INVESTOPEDIA and a Summary from WIKIPEDIA) We also talk a lot about what it was like to work with someone like David Bowie. Bowie himself was not only the driver of musical trends, he was a savvy businessman, futurist and technologist as well. His vision for the scope and power of the internet and its impact on the accessibility of music and the music business itself was extraordinary. Listen here: https://www.youtube.com/watch?v=JPpiYG9_058&t=1s Finally, and some of the issues with future music financings and his thoughts on the impact of NFT’s. Without further ado . . . DAVID PULLMAN. As an extra bonus . . . . Here is a 5 minute outtake of the podcast with David Pullman- in this morsel, we talk about his experience with David Bowie and how the song “Fame” represented a major pivot in Bowie’s career AND Pullman’s! https://frazerrice.com/blog/preview-david-pullman/ The bonus 5 minute outtake on working with Bowie and the gift of "Fame" Finally, here is a list of the 2022 GRAMMY NOMINEES: https://nypost.com/2021/11/23/grammy-nominations-2022-full-list-of-nominees-new-categories/ https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

The College Admission season is in full swing and it brings it usual stresses. However in the world of intergenerational planning, it’s a unique opportunity for families to discuss their core values and the development of their kid’s personal narratives.  It is chance for families to collaborate on a life changing decision around the kids future- a process in which the engaged kids have a vested interest! Finally, it’s often the first instance where kids experience the judgment of their personal narratives by the outside world. To help us dive deeper into this concept, I’m going to speak with LINDSAY TANNE Lindsay is the Founder and CEO of LOGICPREP. As a leading College Admissions Advisor, Lindsay helps students around the world develop and tell their stories and identify their best-fit schools. Over the past decade, she and her team have helped thousands of families successfully navigate the college application and higher education landscape. There's been so much news coverage around college admissions and how last cycle was the most competitive one ever. Is it really as crazy out there as it seems?  Yes and no...More applications for the same number of spots - which means lower acceptance rates are a realityImagine you were applying to Columbia 2 years ago - you were one of 40,000. Well, last admissions cycle, you’re up against 60,000 other students. At MIT, for example, applications were up 66%Simply put, at highly selective schools in particular, the pond expandedIt’s not that you’re a smaller fishIt’s just that the pond got biggerBut there’s one thing in particular I want to point: only 2.4% more students applied BUT applications were up 11%Basically, this means that the increase came from students applying to more schools rather than more students applying overall Less data available Transcripts were less reliable in this last admissions cycle as education moved onlineAdditionally, during the pandemic, almost every school had to go test optional - meaning they wouldn’t require the SAT/ACT - as a temporary accommodation since the tests kept getting cancelled As a result, students did not feel constrained by test score ranges and more students were open to the possibility of applying to highly selective schools than ever beforeIn a sense, it’s like the lock on the front gate appeared to be loosened at the most competitive universities - since test scores no longer stood as a barrier to entry -more students felt emboldened to applyUltimately, not as full of surprises as people might think (90% acceptance rate for LP to 1 of top 3 schools)Why? The criteria for evaluation hasn’t fundamentally changed, but the weight assigned to each category has More subjective, less quantifiableTest scores were optionalTranscripts were less reliable - online school, pass/fail Plus, with limitations on extracurriculars, there were even fewer avenues to demonstrate leadership and passion What actually counts in the college application process? How do you help your child stand out?  Basically, the college admissions process is founded upon three pillars: Academic Record - transcript and its rigor, what classes you take and your grades Standardized Test Scores - SAT/ACT Personal Narrative - your activities, how you spend your summers, teacher recommendations, what it is what makes you who you are2020, of course, was an unusual year - but things are changing slightly….These pillars still stand (though some might be shakier than others) However, the weight or emphasis, of each of these pillars has been challenged  So what is the impact on the test-optional trend on college admissions?  First, let’s define: what is test optional? SAT/ACT not required; considered if submittedWhat is test blind? SAT/ACT not evaluated at all; very few schools fit into this category, though it does include the UC systemThe 2021 admissions cycle has really been an extension of 2020 - more schools offering test optional admissions a temporary adjustment to their policiesWe have to acknowledge that the past cycle and coming one are functioning as an experiment - what does it mean to not require test scores? We don’t know yet, but I do think the option will remain at many schools, especially those who had been contemplating this shift prior to the onset of COVIDDespite these changes, I want to talk about why scores still matterAt the end of the day, they’re one more component for admissions officers to evaluate - and a concrete oneScores contextualize grades - transcripts are variable, not all schools are known to AOsEspecially important for international students where the schools/grading systems are less universally understood Also important for students from selective high schools where the local competition is especially intenseAnecdotally, our most successful students applying to the most selective schools did have strong testingMost importantly: narrative is more important than ever nowDeemphasizing testing means that other subjective factors such as your essay, teacher recommendations, and leadership matter more. First, students are applying to more schools - since it seems the gates have been loosened - so demonstrating interest matters Really about creating a thoughtful and intentional list and defining the “why” in a way that hasn’t mattered as much in the pastAt the end of the day, with more applicants, colleges are even more invested in managing their yield - they want to know who is going to say yes to their offerThis is where the idea of impact comes in - how have you demonstrated depth of commitment and made a difference?So much of the selective process is tied to the idea of narrative nowWe encourage our students to deeply pursue their interests in creative ways, take classes online - the whole world has become more accessible - and brainstorm projects that reflect their passions and strengths What is the value of a college education? How do I know what the right fit is for my child - from a financial perspective, a career one, etc.? Genuinely believe that where a student feels engaged and happy - they will thrive It's about the people you meet, the relationships you develop as much as what happens in the classroom - so, what environments will be most conducive to that? Think about whether grad school is part of the plan (what is the matriculation? grades matter more) When it comes to the job search, what firms recruit? It's all about fit! Well, then, how does my child educate him/herself about fit?  Virtual toursVisit college campuses - sit in on a class, read the school newspaperReach out to your network - talk to current students and recent alumsPartner with a team who can help students not only evaluate the schools themselves but get to know themselves more deeply Should be able to answer the questions of what motivates them, what kind of environments they thrive in, what they hope to gain out of their education so that they can develop an appropriate list If a student thinks they want to go into business, is an undergraduate business degree the only path? The best one?  No!Many of the most selective colleges - say Harvard or Brown or Pomona - don’t even offer undergraduate business The idea at a liberal arts curriculum - which these schools offer - is the following: Hands on Flexible Teaches you to ask questions and differentiate opinion from fact How to connect with different kinds of people - diversity of thinking  - learn how to make decisions based on different points of viewBetter problem solvingThese are all things employers value Skills can be learned on the job, but not how to thinkSo if an MBA is likely to be part of the ultimate plan, worth taking a real pause before diving into an undergraduate business program For example: Reed HastingsCEO of NetflixBowdoin College, Math MajorSusan WojcickiCEO of YouTubeHarvard, History & Literature Howard SchultzCEO of StarbucksCommunications, Northern Michigan UniversityBob IgyerCEO of The Walt Disney Company Communications, Ithaca College The college process is so fraught with anxiety and stress - what can families do to mitigate that?  Start earlyRemember your education is happening now Rely on experts Beyond guiding the process, i alleviates the burden on parents to push teh student along - and therefore removes some of the stress from the familyPlus, teenagers are much more likely to listen to people who aren’t their parents (even if we’re all saying the same thing!) Beyond that, rather than succumbing to the stress, Is there a way to turn the application process into a way to actually instill values?  Social impact projects - give examples of students utilizing their families' resources to make a differenceTell all students who are interested in studying business to get a job (and it doesn't have to be a fancy internship either) Ideally, the college process should be an exploratory one - and a right of passageHelping students identify all of their accomplishments & goals should build confidence and help them establish his identify/wants/dreams/etcIt’s also an opportunity for them to really make decisions and own them - including the consequences - when it comes to weighing risk around strategy (early decision, etc.)  What does personal branding look like in the college application process?  For me, it’s about narrative building Not just about finding a “brand” but about following your curiosity and connecting the dots We encourage our students to think about what sparks their genuine interest - and then to seek opportunities that cultivate it (in the form of internships, after school activities, personal projects, etc.) Online image matters too - have helped students create websites to demonstrate their impact, encourage them to think now about what happens when people Google their namesAlso a potential danger zone - know that admissions officers can and will check social media so operate accordingly!

Here is sneak peak of my podcast with David Pullman- in this outtake, we talk about his experience with David Bowie and how the song “Fame” represented a major pivot in Bowie’s career AND Pullman’s! A fascinating tidbit into Bowie's prescience- A must listen for the NFT crowd. The full interview will drop shortly . . . DAVID PULLMAN https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

You can’t go two minutes without hearing about the allure of venture capital and private equity or the cult of entrepreneurship and the start-up. However, these things are hard!  Venture and P/E require large pools of patient capital, deep expertise and long time horizons. Entrepreneurship requires a unique angle, force of will, operational deftness and a 24/7 personal commitment to success. This has led to the development of SEARCH FUNDS – pools of capital designed to invest in small and medium sized businesses (SMB's) businesses that have gotten off the ground but aren’t exercises in organizational change.  STANFORD has done extensive work investigating their attractiveness. These small and medium-sized businesses stretch across many industries and usually have annual revenues of between $200,000 and $20 million. These businesses are past the start-up stage and usually profitable but could use help in professionalizing certain operating aspects. This has attracted the attention of investors looking for outsized returns and many entrepreneurs looking to run a business without the “startup experience.” Enter STEVE RESSLER- Steve is a serial entrepreneur with 3X exits in GovTech and Software as a Service (including his sale of his first business to Vista Partners). His work has taken him deep into the SEARCH FUND and SMB operator space. He has lots to tell us about both ends of the “search fund” experience, the SMB phenomenon and where it is going. We also cover some great work he's doing with Veterans in the operator space. Background Experience as a founder Having an early exit Software and Government Services- What are the competitive advantages/niches you're looking for here? The appeal of SMB space? Running a Fund vs being an Operator? Expected returns? What is the timeline / exit strategy for your investments? How do the family dynamics differ in search investing from starting the business? When buying the businesses how do you deal with the personal dynamics? Do you get involved in the family dynamics? How do you analyze that? What's next? Involvement with Veterans programs: SEARCHACQUIRE How do we keep in touch? STEVE RESSLER TWITTER STEVE RESSLER NEWSLETTER STEVE RESSLER WEBSITE

Quan is the author of his memoir “SPARROW AND THE RAZOR WIRE” His is an amazing story of redemption, the importance of second chances and the power of entrepreneurship. https://www.amazon.com/Sparrow-Razor-Wire-Finding-Sentence-ebook/dp/B08F34LBXL Quan spent twenty-two years in and out of correctional institutions, including a life sentence for murder. He was paroled 2015 and created his first company six months later. The following year, he received the Peace Fellowship Award for his work with the Alternatives to Violence Project. He is the post-release program manager for Defy Ventures, a nonprofit helping those with a criminal past transform their lives through the journey of entrepreneurship. (I first met Quan when participating in an entrepreneurship program with DEFY VENTURES at Kern Valley State Prison). We’ll be talking about: Quan's Story His Vietnamese background and his early path to gangs and run-ins with the law The Role of Taking ResponsibilityThe Horrors of PrisonGetting Out and the Transition to "Civilian Life"Rebuilding everythingHis company and his work with Defy Ventures . . .Writing his bookThe problems with the criminal justice systemThe path to a better life through entrepreneurism And what’s next for Quan . . . . (A movie deal I hope!) Meeting Quan changed my worldview (More about my visit to KERN VALLEY STATE PRISON here). I hope you learn something from Quan's experience and reconsider the role of the criminal justice system in our society. More About Quan Quan on PBS NewsHour https://www.youtube.com/watch?v=CNuSFwR5wzw His uplifting story on Google Talks: https://www.youtube.com/watch?v=WkhlbGrYTAo How Do We Stay In Touch? Website: www.quanxhuynh.com Twitter: @quanxhuynh Facbook: QUANXHUYNH Linkedin: QUANXHUYNH IG: @quanxhuynh https://www.amazon.com/Wealth-Actually-Intelligent-Decision-Making-1-ebook/dp/B07FPQJJQT/

New York City residents have the highest State and City tax burden in the country (it's over 15% at the top level, recently overtaking California). It's no surprise that New Yorkers are constantly strategizing around their tax burden and potential moves to other states- especially for high earners or those looking to sell a business. But a lot of New Yorkers suffer from 'advice by cocktail party" and many misconceptions float around as people assume that being out of NY for more than 183 days is "enough". Getting out of New York's tax grip is a lot more complicated than that.So we’re going to one of the top experts in the field, MARK KLEIN of HODGSON RUSS.Mark is Partner and Chairman of the Firm and concentrates his practice in New York State and New York City tax matters. He has more than 35 years of experience with federal, multistate, state and local taxation –He may be best known for his public speaking on tax topics. Mark splits his time between the Firm's New York City and Buffalo offices.For New Yorkers listening, you are going to learn a lot on how to arrange your affairs when for state tax purposes. We're also going to talk a little bit about the "Convenience Rule" which is impacting a lot of New Yorkers who have "relocated" due to Covid.What do New Yorkers face?-Income and Capital Gains Tax that is the highest in the nation (Over 15%)-Estate TaxWhat are the typical options when reducing the tax bill? What do you have to show?When moving to a non-tax state, what does a client have to think about? What about the new normal with COVID? What if I'm not working in NYC anymore? Mark and his team at HODGSON neatly sums up the issues here: https://www.hodgsonruss.com/what-to-expect-in-a-new-york-residency-audit.html WHAT TO EXPECT IN A RESIDENCY AUDIT A New York State residency audit is one of the most difficult, intrusive, and document-intensive of all personal income tax audits. And the New York Tax Department has one of the most sophisticated and aggressive residency-audit programs in the country. This handbook follows a question-and-answer format that should tell you everything—ok, almost everything—you need to know about what happens in these audits. You’ll have to call us if you want to know everything! WHAT IS A RESIDENCY AUDIT? A residency audit is designed to determine whether you correctly filed as a nonresident or part-year resident of New York. Because New York residents are subject to tax on their worldwide income while nonresidents are subject to tax only on that portion of their income attributable to (“sourced to”) New York, the difference in tax liability can be significant, particularly if you have substantial investment income. If there is a possibility that you were also a New York City resident, the difference in potential tax can be even more significant since New York City residents also pay tax on their worldwide income while New York City nonresidents pay no tax to the City at all, even if they work there. The audit will generally cover three areas. First, the auditors will focus on the first residency test, called the “domicile” test. Second, the auditors will look to the alternative residency test, called “statutory residency.” And finally, even if you are able to establish nonresidency, the audit will also examine whether you properly “allocated” your sourced income to New York on your tax return. We usually don’t see the New York auditors examining other underlying components of a tax return—such as the income and deductions reported. But in more recent years, as auditors have become better trained (and more aggressive), there has been more of a shift in focus to the ENTIRE tax return, so you should be ready for such questions as well. HOW LIKELY IS IT THAT I WILL BE AUDITED? Very likely. If you are a high-income taxpayer claiming a move into or out of New York, it’s a near certainty you will be audited. The Tax Department is sophisticated and aggressive. Consider some of the numbers: The tax department has ten district offices located across the State (and in Chicago).There are more than 300 auditors who focus on theseOver the past five years, the Tax Department has conducted over 15,000 of theseThese audits have generated over $1 billion in revenue over this time In short, there are a billion reasons why the New York Tax Department watches these issues carefully. If you claim a move from New York, expect to get audited. HOW IS RESIDENCY DETERMINED? There are TWO residency tests. The auditor will first attempt to establish whether you are domiciled in New York. That’s the first test. The second test is more black and white. Under the second test— called “statutory residency”—a taxpayer who is domiciled in another state can still be taxed as a resident if they maintain a permanent place of abode in New York and spend more than 183 days in New York during the year. If you meet either of these tests, you are a resident. So we have to be mindful of both issues. HOW IS DOMICILE DETERMINED? A domicile audit usually is concerned with change: Did the taxpayer move into or out of New York during the audit period? We are often looking to tie that change to a change in lifestyle or some life-changing event, like a marriage, retirement, new job, and so forth. And despite what many taxpayers and practitioners believe, the inquiry is not really focused on where the taxpayer is registered to vote, maintains a driver’s license, or registers his cars. It is a much more subjective inquiry, based on long-standing common-law principles that are often difficult to apply. The general standard from the case law is that “the test of intent with respect to a purported new domicile [depends on] whether the place of habitation is the permanent home of a person, with the range of sentiment, feeling and permanent association with it.” Critically, the party asserting a change of domicile has the burden to prove, by clear and convincing evidence, that the taxpayer abandoned his or her historic domicile and moved to the new location with the intent to remain there permanently. Don’t take the burden of proof concept lightly. “Clear and convincing” evidence is not defined, but we’re sure it means better than 51/49. If a taxpayer has the burden of proof in a domicile audit and the case is a close one, a tie will go the New York Tax Department. Of course, if the Department is asserting a change-of-domicile into New York, the burden goes the other way, and the Department must prove, by clear and convincing evidence, that the taxpayer intended to change his domicile to New York. Overall, though, the domicile inquiry has to do with a taxpayer’s feelings and intentions, which can be difficult to quantify. The nonresident audit guidelines that the Department has put together are of great value in assisting auditors (and practitioners) in working through the issues that come up during a residency audit. Under the guidelines, the auditor is instructed to analyze the taxpayer’s lifestyle, using five “primary” factors to determine where the taxpayer’s domicile—his or her one, true home—is actually located. An assessment of these “five factors,” and a series of less significant “other” factors as necessary, is used by the Tax Department as an objective means to a subjective end: on balance, the place where the factors most heavily favor is likely the taxpayer’s domicile. THE FIVE FACTORS HOME The home factor reviews the use and maintenance of the taxpayer’s New York residence as compared with the nature and use patterns of the non-New York residence. In other words, does the taxpayer behave as though the non-New York residence is her “home”? That is particularly crucial when a New York residence is acquired by a taxpayer whose domicile is in another state or when a residence in New York is retained after a move to another state. So questions about timing, and which residence was owned or occupied first, are often important. But other questions often arise. Is one residence owned but the other a rental? What is the value and sizeof each residence? What actions did the taxpayer take to remove herself from the old community? Has she established roots in the new community? Where does the family spend holidays and special occasions? Those are the questions practitioners have to ask -- because we know the auditor will. ACTIVE BUSINESS INVOLVEMENT This factor considers the pattern of employment and the compensation derived from that employment. It will also examine the taxpayer’s active business involvement other than employment. Ongoing participation in decision-making and frequent communication with a business, even after official retirement, can be viewed as the most significant evidence of one’s domicile. For this factor, we would be looking to determine where the taxpayer actually worked on a day-to-day basis as well as the location of his primary office. If the taxpayer is a partner or shareholder in a New York business, the level of participation in the day-to-day management of the business can be looked at as well. Often, of course, the taxpayer is retired, so this is a nonfactor in some cases. Sometimes a taxpayer moves from New York City out to Westchester County, Long Island, or another City suburb. The taxpayer will continue to work in New York City after the move, only as a commuter, and not a resident. Auditors are instructed to be reasonable in this situation, and not inflate the value of this factor vis-à-vis a taxpayer’s otherwise strong non-New York City connections. TIME Time is often the most important factor in a domicile case. Generally, an individual is going to spend the majority of time at his “home.” So the residency audit is naturally focused on this question,