COMPTROLLER STRINGER AUDIT FINDS CITY GAVE OUT $59.2 MILLION IN SENIOR CITIZEN TAX BREAKS TO DECEASED NEW YORKERS AND CORPORATIONS

Comptroller Stringer has identified nearly $75 million in lost tax revenue as a result of six audits of DOF since 2014.

  

Audit Report on the New York City Department of Finance’s Administration of the Senior Citizen Homeowners’ Exemption Program

SR16-087A

July 7, 2016

EXECUTIVE SUMMARY

This audit of the New York City Department of Finance (DOF) concerns its administration of tax benefits granted to property owners under the Senior Citizen Homeowners’ Exemption program (SCHE), which provides a partial property tax exemption for senior citizens who own one, two, or three family homes, condominiums, or cooperative apartments in New York City.  The Senior Citizen Homeowners’ Exemption appears as a reduction of the assessed value of the property, which is used to determine the property tax.  The assessment value of the property can be reduced by a maximum of 50 percent depending on the owners’ income.

New York State Real Property Tax Law (RPTL), Section 467 (Section 467), established a partial property tax exemption for senior citizens who own one, two, or three family homes, condominiums, or cooperative apartments.1  Section 467 states that any homeowner who has been granted an exemption must file a completed application every twenty-four months from the date such exemption was granted.  In 1974, the New York State Board of Equalization and Assessment (SBEA) issued an opinion stating that property owned in the name of a corporation may not be granted the SCHE.2  In 1998, the New York State Board of Real Property Services (SBRPS) issued an opinion stating that a property with four or more units would require the SCHE to be prorated to the unit being utilized as the owner’s primary residence; however an entire structure would qualify for the exemption if the property contains three or fewer units.3

Homeowners who receive a SCHE also automatically qualify for and receive an Enhanced School Tax Relief (STAR) exemption based on their income and homeownership status.4  If SCHE was found to be inappropriately applied in prior years, New York State’s Exemption Administration Manual Pertaining to the Partial Tax Exemption on Real Property of Senior Citizens states that a “municipality may rescind the exemption in a subsequent year.”

Audit Findings and Conclusion

DOF improperly credited the SCHE to 3,890 properties that were not eligible resulting in a loss to the City of at least $48,529,687. DOF failed to remove the SCHE from at least 3,246 properties after the homeowners had died.  This resulted in a loss of property tax revenue of at least $35,976,029 from Fiscal Years 2012 through 2017.  In addition, DOF failed to correctly prorate the exemption amounts granted to 573 properties that contain four or more units.  These properties received 3,219 excessive exemption amounts to which they were not entitled, which resulted in a loss of property tax revenue of at least $11,176,036 from Fiscal Years 2011 through 2016.  DOF also allowed corporate owners of at least 71 properties to receive 307 exemptions for which they were not eligible.  This resulted in a loss of property tax revenue of at least $1,377,622 from Fiscal Years 2011 through 2016.  Additionally, DOF improperly credited properties of deceased homeowners and corporate owned properties with Enhanced STAR exemptions totaling $10,647,896.  Thus, this audit identified $59.2 million in lost tax revenue to the City.

Finally, DOF failed to enforce the requirement that homeowners reapply for SCHE every two years as required by Section 467.   The lack of a reapplication process may have allowed properties to continue getting the SCHE and the Enhanced STAR exemptions for many years after they were no longer eligible.

Audit Recommendations

The audit made 12 recommendations, including that DOF should:

• Verify whether all the homeowners that applied for the SCHE are deceased and remove the SCHE and Enhanced STAR exemption from those properties retroactively from the date of death.
• Ensure that it implements controls to remove the exemptions from properties whose owners are deceased, retroactively to the date of death.
• Recover the $35,976,029 in erroneous SCHE exemptions that were applied to properties after the qualifying homeowner(s) were deceased if DOF determines that the subsequent owner was not eligible for SCHE.
• Recover the $10,460,540 in erroneous Enhanced STAR exemptions that were applied to properties after the qualifying homeowner(s) were deceased if DOF determines that the subsequent owner was not eligible for the Enhanced STAR.
• Recover the $11,176,036 in excessive exemptions that were granted to properties containing four or more units.
• Recover the $1,564,978 in erroneous exemptions ($1,377,622 in SCHE and $187,356 in Enhanced STAR) that were granted to the properties owned by either a corporation or LLC.

Agency Response

DOF generally agreed with the audit’s recommendations and stated that it would address the issues identified.  Further, the agency stated that it “appreciates the Comptroller’s audit findings regarding the administration of the Senior Citizen Homeowner Exemption (SCHE) Program.”  However, with regard to the recommendations that DOF recoup prior erroneous exemptions, DOF officials stated that “[w]hile DOF agrees that benefits to business entities should be recouped, the agency is still reviewing the issue with regard to individuals. Our main concern is unfair treatment to ‘innocent purchasers’ who might have been unaware of a benefit on their property — for example, after an ownership change.  Many home owners pay their taxes through mortgage service companies and may not be fully aware of the specifics as to how their taxes are computed.”

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1 NYS RPTL § 467(6)(c)

2 NYS SBEA Volume 3 – Opinions of Counsel SBEA No. 54

3 NYS Volume 10 – Opinions of Counsel SBRPS No. 64

4 A prior audit by our office reviewed instances where corporations and LLCs improperly received STAR exemptions, although they were not entitled to receive such an exemption.  Audit Report on the Department of Finance’s Administration of the School Tax Relief Program, Audit Number FM15-070A, issued June 17, 2015.