At the peak of the real estate boom, the owners of a four-story building with a couple of huge billboards in Times Square failed to report money that they received from renting the signs, evading tens of thousands of dollars a year in property taxes.
The owners went further than just omitting the billboard income; they appealed to the city for a reduction in taxes for six consecutive years. But after an investigation by the Manhattan district attorney, Cyrus R. Vance Jr., the owners paid $240,000 in back taxes as part of an agreement settling the matter.
On Wednesday, the grand jury that heard evidence in the case, as well as two others that resulted in indictments, issued an unusual report recommending a series of what it said were “desperately needed” changes to the city’s property tax system, including civil sanctions and stiffer penalties for landlords who file false documents and information.
The report suggests that this kind of tax evasion may be widespread, citing a survey that found that 60 of 100 property owners cited by the Buildings Department for improper permits had failed to report signage income to the Tax Commission.
City officials, who testified extensively before the grand jury, said it was impossible to know how many of the city’s one million property owners were evading taxes by filing false income and expense statements with the Finance Department or the Tax Commission. But with $17 billion in property taxes collected in 2011, Glenn Newman, president of the Tax Commission, said “even a small amount of fraud can result in real money lost.”
Members of the city’s real estate industry said the issue might be overblown. “We’re surprised to see this report,” said Steven Spinola, president of the Real Estate Board of New York. “Obviously, anything can be improved. But we believe the overwhelming majority of companies submit accurate statements, many of which are certified.”
In recent years, the Real Estate Board and many landlords have complained unsuccessfully to the city about inordinately high tax rates for apartment buildings, which, they say, account for as much as 33 percent of gross income.
In the last fiscal year, the owners of 184,000 properties appealed their tax assessments. And in 2011, the Tax Commission granted about $500 million in tax reductions.
The grand jury, however, cited studies showing that many properties identified by their owners as vacant or owner-occupied were in fact retail shops. Another study found that owners of unlicensed hotels had filed for tax reductions without reporting all the income they received.
The grand jury recommended requiring notarized statements and moving the current deadline for property tax filings back to June, from September, to provide the city more time to evaluate the income and expense statements. They also recommended imposing civil sanctions against owners who file false statements and allowing the Tax Commission to raise the assessed value of a property if it discovers that the owner omitted revenue information.
“As the city’s single largest revenue source, the importance of real property tax to the financial well-being of New York cannot be overstated,” Mr. Vance said in a statement Wednesday. “However, some unscrupulous individuals and entities routinely try to cheat the city out of this valuable revenue stream by filing false information with city agencies.”
One tax lawyer, who requested anonymity because he did not want to alienate city officials, said that a certified audit for each property would be expensive, and he questioned why officials were seeking additional penalties when there are already substantive sanctions for false statements. The city may be trying to create some momentum for a bill that would change the filing date for tax information, which, he said, did not have much support in the City Council.
Source: The NY Times